Can Islamic banking work in South Africa?

Abstract

In little more than a decade, Islamic banking has grown into a $300 billion a year industry worldwide and is now finding its way to South Africa hence providing a wealth of opportunities to new and existing players in the South African banking industry. One of the key factors differentiating Islamic financial institutions is the need to demonstrate compliance with Shariah in all their activities. There is a lack of consensus in the industry as to whether certain transactions or activities are compliant, which can cause confusion among practitioners and customers as well as restricting the concept of Islamic finance from wider acceptance and recognition.Therefore, the purpose of this study is to test whether Islamic Banking can work in the South African market. Qualitative research was conducted to determine the South African banking environment, customer sceptism, controversies and challenges faced with regard to this growing industry. Content analysis of 16 depth interviews with banking representatives, South African Reserve Bank representative, Islamic scholars and Muslim customers revealed interesting insights that guided the research to possible outcomes. Together with presenting a model that Islamic banking can use, a number of strategic implications and limitations are discussed, and directions for future research are also addressed.