(Corrects Nigeria Muslim population in 10th paragraph in
story published yesterday.)
Senegal, Pakistan and Afghanistan,
among the world’s 50 poorest nations, are turning to Islamic
banking to spur economic growth by encouraging people to take
out loans and open savings accounts.
Outstanding domestic bank lending accounted for 3.5 percent
of Afghanistan’s gross domestic product in 2008, 25 percent in
Senegal, 27 percent in Nigeria and 46 percent in Pakistan,
according to data compiled by the World Bank. The rates compare
with 224 percent in the US and 115 percent in Malaysia, a
global hub for finance that conforms with Shariah principles.
Developing Islamic nations have shunned banking in part
because of the religion’s ban on interest, limiting access to
funds for project financing and stunting business growth,
according to the International Monetary Fund. Governments should
improve regulations, products and institutions that comply with
Shariah law to accelerate the industry’s development, Patrick
Imam and Kangni Kpodar, economists at the IMF, said in a
telephone interview from Washington on Sept. 14.
“Islamic banks provide access to finance to a segment of
the population that is underbanked,” said Imam. Once “they
start putting money in these banks you start a process of
financial intermediation, where savings are channeled from
individuals via Islamic banks to investments,” he said.
‘Closer to Religion’
Senegal is reviewing legislation that would allow lenders
to set up Islamic units in a nation where 94 percent of people
don’t have savings accounts, Birahim Seck, chief executive
officer of SYM International Finance Corp. in Dakar, said in a
Sept. 14 interview. Pakistan’s central bank is pushing Shariah
banks to boost financing to small- and medium-sized businesses,
Saleem Ullah, the director of Islamic banking, said on Sept. 16.
Afghanistan is planning to issue three banking licenses,
the first to offer a full range of financial services that
comply with Muslim tenets, paving the way for its first sale of
Shariah-compliant debt, Aimal Hashoor, a central bank spokesman
in Kabul, said in an interview on Aug. 15.
Global sales of sukuk, which use asset returns instead of
interest to pay investors, fell 24 percent to $10.7 billion so
far this year, according to data compiled by Bloomberg. Issuance
will increase in the second half as international market
conditions improve, Standard amp; Poor’s said in a statement on
“In poorer countries, people are generally closer to the
religion so it is much easier to attract them toward anything
associated to their belief,” Pervez Said, chief executive
officer of Dawood Islamic Bank Ltd. in Pakistan, said in a phone
interview from Karachi on Sept. 14.
Afghanistan had a per capita gross national income of $370,
compared with $590 in Bangladesh, $1,040 in Senegal, and $1,140
in Nigeria, according to World Bank 2009 data published in July.
In contrast, the figure was $47,240 in the US and $7,230 in
Malaysia. About 99 percent of Afghanistan’s 33 million
population practice Islam, while 95 percent of people in Senegal
are Muslims, according to the 2009 CIA World Factbook.
Nigeria, which has 75 million Muslims accounting for 50
percent of the total population, drafted Islamic banking
guidelines last year, including the types of Shariah-compliant
products and risk recommendations for banks.
Jaiz International Bank, based in Abuja, Nigeria, has yet
to start its Islamic banking operations after receiving a
license from the country’s central bank this year, Muhammad
Mustapha Bintube, the lender’s managing director, said in an
interview on Sept. 18.
“There are still some legal and regulatory issues to be
sorted out,” he said. “There’s a lack of skills and a lack of
knowledge” about the industry, he said, adding that between 50
percent and 60 percent of the population don’t use banks.
Assets to Increase
The Islamic Financial Services Board, a global standard-
setting body, and the Islamic Development Bank predicted in
April that assets held by Islamic financial institutions may
climb to $1.6 trillion by 2012 from about $1 trillion this year.
The IMF and the World Bank are members of the IFSB.
The United Arab Emirates accounts for 22 percent of total
Islamic banking assets, followed by Saudi Arabia, Bahrain and
Kuwait, according to a September report from the IMF.
Sukuk have returned 10.6 percent this year, compared with
24 percent in the same period in 2009, according to the
HSBC/NASDAQ Dubai US Dollar Sukuk Index. Debt in developing
markets gained 12.6 percent, JPMorgan Chase amp; Co.’s EMBI Global
Diversified Index shows.
The spread between the average yield for Islamic bonds and
the London interbank offered rate has narrowed 92 basis points
this year to 375, according to the HSBC/NASDAQ Index. The gauge
climbed five basis points yesterday. A basis point is 0.01
Reward and Failure
Malaysia’s 3.928 percent dollar-denominated Islamic bonds
due June 2015 have returned 4.2 percent this quarter, compared
with 6.4 percent for the Dubai Department of Finance’s 6.396
percent sukuk, according to prices from Royal Bank of Scotland
The yield on Malaysia’s note dropped two basis points to
2.7 percent today. The rate on the Dubai bond climbed six basis
points to 6.42 percent. The extra yield investors demand to hold
the Dubai November 2014 securities rather than Malaysia’s
widened seven basis points to 372. The gap has narrowed 45 basis
points, or 0.45 percentage point, this quarter.
Senegal would lure funds from the Middle East with a system
to facilitate Islamic financing, said Seck at SYM International.
A lack of regulation and sufficient knowledge are hampering
growth, said Seck, whose company helps bring investment from
members of the Organization of the Islamic Conference into West
“You have to have a strong system in place and most West
African countries do not have regulation that can allow Islamic
banking to operate,” he said.
The concept of risk-sharing in Shariah banking that
prohibits interest payments would be more useful in Muslim
countries because their economies are less diversified, the IMF
“In the Islamic banking system, both the bank and
entrepreneur share the reward and failure, and in many
developing countries such risk sharing might allow entrepreneurs
to undertake projects that they couldn’t otherwise
contemplate,” said Kpodar at the IMF.
To contact the reporters on this story:
Khalid Qayum in Singapore
Soraya Permatasari in Kuala Lumpur at
To contact the editor responsible for this story:
Sandy Hendry at