The Opportunity for Growth in Islamic Finance in Africa
Generally, one of the hardest roadblocks with regard to raising of fund is reaching behind the circle of normal donation. As Africa has more than 490.92 million Muslim populations, they hold the good opportunity of growth for the Islamic finance. Though majority of people from Africa still do not use the banking system, it is growing sophisticatedly in some countries. Funds can be raised from bank in exchange of paying interest on the borrowed amount. Borrowing capability depends on the credit profile and the collateral type of that can be offered by the borrower. Therefore, to borrow funds from the bank the borrower must have a well defined plan. From the traditional point of view, this is the best option for the borrower to get capital and optimizing the credit score at the same time. Securing the fund also proves that the company is real one to the investors.
KPMG helps their clients through navigating the up-going landscape of complicated finance towards the prosperous future. Their dedicated financial service business all over the world provides access to different major market place for the finance. They provides the recommendations and advice with regard to leading practice through the updated minute understanding for the major issues that are faced by the international and local industries for the financial services. While giving advice, KPMG seeks for –
- Supporting the decision making of the client with clear assessment of the available solutions and options
- Providing the market experience with regard to the key products, debt markets and counter parties.
- Create the competitive environment
- Assist in negotiating with the investors and the bankers.
- Guide the client throughout the process of transactions, started from the initial strategy to implantation of the strategies
- Share their knowledge with the potential investors, their attitude towards credit, their appetite, structure and pricing.
In providing the above services they apply their knowledge and experience of –
- Debt renegotiation and restructuring for the under-performing organizations and it includes negotiations with the bondholders, banks and the institutional investors.
- Corporate debt that includes refinancing and new issue of debt
- Asset financing and real estate that includes leaseback and sale transactions and reviews of the funding options.
KPMG in Bahrain is the global “centre for excellence” for the Islamic banking and they work closely with industry participants, regulators and the Islamic standard setting bodies. They are experienced in offering advisory services to the Islamic institutions for finance and have wide knowledge for understanding the requirements to provide the client with robust and relevant professional services (KPMG 2017).
As per their report, the main purpose of the Islamic Finance is to carry on the ethical business with regard to the intention of Shariah for protecting properties, intellect and the human life. Business complied with the Shariah structure considers the common interest of the people. Thus, most of the products of Islamic business are structured in partnership form. The central characteristic of the Shariah complied products is avoidance of Ghahar that is uncertainty. The avoidance of Ghahar shall assure that no contracting party is in unfavourable position. Rewards and risk must be shared among the business partners. On the contrary, usage of speculation, derivatives and uncovered short sales are known as gambling and therefore, is not permitted. Apart from this, the money is not considered as asset, rather is is considered as exchange tools. Thus, creation of money from money through offering interest bearing loans is prohibited. Each underlying asset of the Islamic finance product shall be treated as real asset.
Borrowing Funds from the Bank
With their headquarter in Bahrain within EY Global Centre of Excellence, their specialist team for Islamic Financial Services Advisory caters for the unique requirements of the Islamic as well as Conventional financial institutions that requires the advisory services for the Islamic finance. They were the 1st professional services for establishing the dedicated team for providing services to the clients in the growing industry and to provide various other services to the Shariah. Their major offerings includes –
- Governance and risk – risk management, internal audit of Shariah and corporate governance of Shariah
- Advisory services for transactions – business modelling, support for merger and acquisition and structuring of advices
- Project management – project management, PMO running and set-up, work stream management
- Strategic direction – industry reports, concept development and strategy articulation
- Information systems – MIS design, core banking design and selection, support for implementation (Ey.com 2017)
In the recent study of EY named “World Islamic Banking Competitiveness Report 2016”, they explored the landscape for Islamic banking and 45 other conventional banks that covered the markets of Bahrain, Qatar, United Arab Emirates, Turkey, Pakistan, Kuwait, Saudi Arabia, Indonesia and Malaysia.
As per their report –
- The participation banking has the loyal corporate and loyal followers in Bahrain and it maintained the stable investment financings and accounts in face of the contraction of conventional banking. This phenomena exceptionally improved the participations banks market share during the year 2014
- Participation banking in Bahrain was suffering from the underperformance of ROE due to comparatively high cost base and lack of the scale benefits. This is the case of the consolidation for reducing the cost base.
- On the contrary, Bahrain is recovering and experienced the slight increase by 1% in the participation share of the banking assets.
The mission of Grant Thornton is to assist the clients to create value and protect themselves against the unusual risks associated with the business and transform the operations to achieve success. To have maximum effect on the business, they deliver the advisory services through the interconnected business lines. They offer various services like –
- Transaction services for creating value – they open new horizons for creating competitive advantages and generation of business profitability through corporate finance, diligence and operations services
- Business risk services for protecting value – they manage, identify and mitigate the risks through forensics, regulatory compliance, data analysis, cyber risk strategies and controls
- Business technology and consulting for transforming the value – they assist in preparing the organization for generating optimum performance through the performance improvement, financial management, strategies and technological solutions.
In the view of Grant Thornton, the Islamic Finance is the crucial segment of global market for the financial services with almost 75% of exposure around the world. With regard to the Islamic Finance, this segment has equal importance for the Islamic Finance, that is the segment has equally crucial for the fiscal effect over 150 takaful and 400 banks that offers solutions and at the same time over $100 billion Sukuks are issued annually. As the Islamic finance are becoming efficient tool for the global financing development that includes even the non-Muslim Countries, the industry is required to concentrate regarding the major thematic challenges and issues that it faces (Grantthornton.com 2017).
As per their report, the Islamic Financial services and products are different from the conventional counterparts from the Shariah principles and precepts compliance. Compliance risk of Shariah with regard to Islamic Financial Institutions is a risk that the financial product or service will not or is not in compliance with the Shariah’s standards and principles. The non-compliance can be pervasive and significant and it can lead to the withholding of funds by the depositors, voiding of the contracts, loss of income, litigation which in turn will lead to long-term damage and reduced reputation to the business franchise of Islamic Financial Institutions
From the above discussion, it is recommended that among the above three advisors, KPMG shall be selected as they work with the clients for cutting through complexities in the present changing marketplace. Further, they leverage their expertise in the global network of the firms in combination with the skills and knowledge of their local-based professional to implement the practical recommendations that are designed to assist the clients to work smarter, compete stronger and grow faster. Further, they have trusted advisor with regard to various leading organizations of the world. Moreover, they shall be selected as they are well-known for the technical expertise, talented people, deep insights about the industry and their ability to get the task done.
Mr Talal Ali Al Zain and Mr. Othman Ebrahim Naser Al Aksar, members of the board will be appointed to discuss the fundraising proposal with KPMG, Grant Thornton and Ernst & Young.
KPMG initially asked for 5% commission on the total amount to be borrowed. However, the board members were able to negotiate at 4% of the amount to be paid as commission. Therefore, the commission will be USD 600 million * 4% = USD 24 million.
As soon as the management of Islamic bank finalize the company for the purpose of fundraising, they will arrange the meeting with the company. Thereafter, they will review the report prepared by KPMG that is to be submitted to the bank for fundraising.
Reference
Ey.com. (2017). Financial Services Consulting in India – EY India. [online] Available at: https://www.ey.com/in/en/industries/financial-services [Accessed 17 Jul. 2017].
Grantthornton.com. (2017). Financial services | Grant Thornton. [online] Available at: https://www.grantthornton.com/industries/financial-services.aspx [Accessed 17 Jul. 2017].
KPMG. (2017). Financial Services. [online] Available at: https://home.kpmg.com/xx/en/home/industries/financial-services.html [Accessed 17 Jul. 2017].
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