Islamic banking is quite global - Matambo

LEKOPANYE MOOKETSI
Correspondent | Friday December 10, 2010 00:00

Answering a question in Parliament this week, Matambo said profit-making entities like banks are always looking for ways and means of growing their businesses, especially in the face of increased competition.

This is done through the introduction of new and innovative products and facilities that meet the requirements of their customers.

However, the crux of the matter in Islamic banking is that the bank charges no interest on loans and pays no interest on deposits.

Matambo said Islamic finance/banking originates from the Islamic religion and refers to a system of banking activities that are consistent with Islamic (Shariah) laws and principles and is guided by Islamic economic doctrines.

He said in the recent years, Islamic banking and other Shariah law-compliant financial products and services have grown globally, including in countries such as the United Kingdom, the United States, Mauritius, South Africa, Malaysia, the Middle East and North African countries.

As part of the strategy for growing its business through innovative products, FNBB was the first bank to introduce Islamic banking in Botswana. The main aim was to provide a service to the Muslim community in Botswana who could not easily use conventional banking services because of their religious restrictions and/or preferences. 

'It must be noted that other non-Muslim customers who might be interested in the product can also access such services,' the minister said. 'Therefore, it is neither discriminatory nor mandatory for any segment of the population.'

In addition, he said, FNBB's Islamic banking activities are not accounted for separately from its conventional banking activities.At any rate, Islamic banking is the same as conventional banking except that the financing arrangements or banking activity must operate in accordance with principles and rules anchored on the Sharia laws.

Matambo said Islamic banking does not permit charging interest on a loan or paying a depositor any interest. Instead, the concept of interest as applied in conventional banking is replaced by profit and loss sharing. The rationale is that the credit system involving interest leads to an inequitable distribution of income in society.

In some instances, the minister said, a mark-up for delayed payments and trade finance commissions is allowed under the Islamic banking model because these are not considered to be charging interest.

Islamic banks operate only on profit/loss sharing arrangements. Two of the most popular forms of profit/loss sharing are mudarabah (profit-sharing) and musharakah (joint venture).  Islamic banks pool all the profit/loss from different investments and share them with the depositors of funds according to a predetermined formula.

Hence, Islamic banks are considered partners with both depositors and entrepreneurs and share risk with both of them.Matambo said all bank customers, including other religions and/or groupings, are free to approach any bank to propose or negotiate a special banking product. However, the bank is not obliged to offer the requested facility and/or product.

An assessment, in terms of the risk posed by the proposed banking facility is necessary, and whether that will fall within the risk levels acceptable to the bank taking into account the expected rate of return from such a facility is for the bank to decide. 

Matambo was responding to a question from the MP for Shoshong, Phillip Makgalemele, who wanted to know the justification behind having an Islamic banking   product/facility at FNBB.

The MP also wanted to know the key components and qualification criterion for such a product.

Further, Makgalemele wanted to find out whether other religions and groupings are free to approach banks to negotiate special banking products, given that there is a perception that Islamic banking is discriminatory and is aimed at progressing (the) gains of a certain community.

Meanwhile, in answering another question, Matambo said he was not aware of any delays in the disbursement of funds from his ministry to the Ministry of Local Government at the beginning of each financial year.He was responding the MP for Kgalagadi North, Phillip Khwae, who wanted to know whether the minister was aware of delays in the disbursement of funds between the two ministries.

Matambo said in the case of the recurrent budget, at the closure of each financial year, a new budget for the coming financial year was loaded into the government accounting and budgeting system on the first day of the financial year. 

He said following approval of the budget by Parliament, authorised funds are disbursed to other levels of government. At the same time, finance warrants authorising expenditure are issued to each accounting officer.In the case of the development budget, finance warrants are issued on the basis of the implementation schedules of projects and on request by implementing ministries. In that regard, finance warrants are also issued to the Ministry of Local Government upon request.