- Features
- Sonhibou Diop
- 0
Most experts have shown in their research the timidity of the development of Islamic finance on the African continent and its small share of the total Islamic financial industry balance sheet — less than 2%. As for the West African Economic and Monetary Union (WAEMU), member countries have lagged because they have long been reluctant to adopt Islamic instruments to finance the real economy. Secularism has been pointed out as the real cause of this hesitation. Indeed, some regulators, such as the Central Bank of West African States (BCEAO), have repeatedly stated that they did not want to create a legal or regulatory dualism situation that could be interpreted as discriminating against one system or another.
This situation persisted until 2018 when the BCEAO published the first regulatory texts to govern Islamic finance activity within banks and microfinance institutions. Therefore, we note that before the appearance of these texts in 2018, Islamic financial activity was regularly exercised in Senegal only by the Islamic Bank of Senegal as a derogation, and by PAMECAS which exercised it without any regulatory framework.
Thus, 2018 was a turning point for the Islamic financial industry in West Africa and Senegal in particular. One year later, more precisely in October 2019, the first regulatory texts related to Takaful insurance operations to be applicable in the member countries of the Inter-African Conference on Insurance Markets were issued.
Review of 2022
The premises of an appropriate regulatory framework and the interest shown by the Senegalese population have aroused the interest of stakeholders, which could explain the proliferation of training courses leading to a diploma and certification in Islamic finance at the higher education level. However, this dynamic has been hampered by the COVID-19 pandemic which has slowed down all public, para-public and private activities. In this sense, we consider 2022 as a genuine revival of Islamic financial activity in Senegal.
We should recall that, until the end of 2021, the private segment of the Senegalese financial system was characterized mainly by the presence of four players which offered Islamic financial instruments: Islamic Bank of Senegal, the only bank in Senegal with an exclusively Islamic offer; Coris Bank, the only conventional bank in Senegal with an Islamic window; PAMECAS, the only conventional microfinance institution with an Islamic department; and SEN Assurance, the only conventional insurance company that offers Takaful. This trend seemed to have ended in 2022.
January 2022 marked the entry of a new player that stands as the first exclusively Islamic microfinance institution in Senegal — Taysir Finance launched its activities with a share capital of XOF1 billion (US$1.59 million).
Another major event that revolutionized the WAEMU financial market was the issuance in April of a Senegalese corporate Sukuk facility of XOF300 billion (US$476.36 million) and the raising of XOF330 billion (US$523.99 million) over a period of three subscription days, a coverage rate of 110%. This amount is, so far, the most significant amount ever raised in the WAEMU financial market, all instruments included. The transaction was also the first Sukuk to be arranged and structured entirely by national players, namely the Islamic Bank of Senegal, with the support of its international partners such as the Islamic Corporation for the Development of the Private Sector through its subsidiary called Tayba Titrisation based in Senegal.
The initiative of the Regional Council of Public Savings and Financial Markets of the WAEMU deserves to be mentioned. The council has worked on a regulatory framework development dedicated to the Islamic capital market within the regional financial market, the texts of which were submitted for validation on the 24th February 2022 in Togo.
Aware of the need to harmonize Islamic finance practices in the subregion, the BCEAO has proceeded, during 2021/2022, to circularize two draft texts to the players: a prudential and accounting system reserved for Islamic financial products and model contracts that the relevant institutions will be invited to use after they are validated.
Private initiatives have not been left behind either. Indeed, in addition to its advanced Takaful project, the Islamic Bank of Senegal has also publicly communicated on the imminent opening of an exclusively Islamic microfinance institution of which it will be the majority shareholder, and which will be the best capitalized Islamic microfinance institution in Senegal with a share capital of XOF5 billion (US$7.94 million).
Two other conventional banks operating in Senegal, BSIC and BNDE, have also announced their Islamic windows’ imminent opening in 2022. It is important to remember that all these upcoming institutions already have their Shariah boards in accordance with the 2018 regulations.
In addition, training courses in Islamic finance and awareness workshops on the potential and development of the Islamic financial industry in Senegal have multiplied. Besides the 7th edition of the West African Islamic Finance Forum organized in Dakar in May 2022 by the African Institute of Islamic Finance (AIIF) and the holding of a scientific symposium on Waqf by the High Authority of Waqf (HAW) organized in the same period, investors and enthusiasts of Islamic finance have also been made aware of the two Islamic mutual funds promoted by the CGF-Bourse. The latter has initiated open days to popularize its products, and one of these days was dedicated to Islamic finance.
Preview of 2023
All the aforementioned initiatives have made 2022 a year of revival and would strongly contribute to opening beautiful perspectives for the 2023 horizon. We hope that with the implementation of all the ongoing projects, a true Islamic financial ecosystem, with all these compartments included, will be created in Senegal. Thus, establishing that ecosystem requires the existence of Islamic financial players in all areas to facilitate their interaction and ensure full Islamic compliance of their operations. Therefore, we believe it is necessary to pursue the initiatives undertaken for the establishment by 2023 of Islamic financial institutions such as microfinance isntitutions, Takaful insurance companies, banks and/or windows, mutual funds and such.
However, 2023 should also allow regulators to improve the regulatory framework to cover all aspects of Islamic finance. We should note that Islamic financial system players in Senegal and the WAEMU are experiencing many difficulties in developing their activities due to incomplete regulatory, fiscal and legal frameworks.
Conclusion
To conclude, we recall that establishing and developing the Islamic financial ecosystem in Senegal have two main challenges. First, we note the refinancing problem that remains despite the coexistence of several Islamic financial institutions that can promote the development of an Islamic interbank market; the BCEAO should necessarily consider creating an Islamic refinancing window. This refinancing window is the only guarantee for the compliance of the resources of Islamic financial institutions.
The second challenge that should be addressed to enable Islamic financial institutions to compete on an equal footing with their conventional counterparts is the taxation of products. Thus, the issue of the legal qualification of Islamic financial contracts in sales or financing contracts arises, and would not only allow the rules to be applied in the case of litigation but also, above all, to propose an adapted tax framework.
Sonhibou Diop is the head of the Shariah Department at Islamic Bank of Senegal. He can be contacted at [emailprotected].
