Islamic Fund Management
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only licensed securities exchange in South Africa and has been ranked as the best regulated
market in the world (out of 148 rated) for four consecutive years (Oxford Business Group, n.d).
Tax Framework
South Africa amended its tax laws to develop and facilitate its Islamic finance industry. Under
the Taxation Laws Amendment Act, 2010, legislation on Islamic finance was added to
recognise mudarabah, murabahah and diminishing musharakah. In 2011, another amendment
was made to the Act to introduce sukuk, although confined to sovereign issues. In January
2016, a sukuk legislation was passed to accommodate listed companies. These concerted
efforts highlight the support of the government and regulators in the development of Islamic
finance even though South Africa is not a Muslim-majority country.
Demand Side
Lack of market awareness and understanding of Islamic finance: Islamic finance started in
1989, with the establishment of one full-fledged Islamic bank, followed by Islamic windows
operated by conventional banks and an increasing number of Islamic AMCs. However,
awareness of Islamic finance is poor among its communities. Based on a study conducted in
2014 to examine awareness of Islamic banking products and services among consumers in
South Africa, the results revealed that 48% of the respondents were not aware that Islamic
banking was available for both non-Muslims and Muslims. The study also showed that 70% of
the Muslim customers had accounts in non-Islamic banks, with few customers embracing
Islamic banking (Cheteni, 2014).
Government and some private sector employees have no choice but to opt for
conventional pension funds: The Government Employees Pension Fund (GEPF) manages
pensions and related benefits on behalf of all South African government employees. It is also
Africa’s largest pension fund. It has more than 1.2 million active members, in excess of 400,000
pensioners and beneficiaries, and assets worth more than R1.6 trillion. Unfortunately, the
GEPF has no specific allocation for Shariah-compliant funds. In the private sector, most
companies would have their own private pension fund schemes, which are mostly invested in
conventional funds. Therefore, both the government and private sector employees have no
choice but to place their money in conventional pension fund schemes.
Lack of incentives to encourage Shariah-compliant savings and investment: Normally,
Islamic funds attract higher costs than their conventional counterparts due to certain fees,
charges and treatment of the transactions. Therefore, the top-down approach by the
government in providing incentives plays a crucial role in creating a level playing field for
Shariah-compliant investment/savings.
Supply Side
Inadequate Shariah-compliant assets: The number of Shariah-compliant companies
available on the JSE is very limited. There are only 160 Shariah-compliant entities out of 400 as
at end-2017. The number of sukuk available in the market is also scarce, prompting fund
managers to invest in offshore assets. However, Regulation 28 limits pension funds’ foreign
exposure to only 20%.