Shari’ah Banking and investment – Advertising feature

Shari’ah-compliant finance gains momentum in South Africa

With renewed sovereign sukuk issuance and steady portfolio growth, Shari’ah Banking is carving out a deeper presence in the financial system. Its long-term impact will depend on inclusion, innovation and market depth.

Shari’ah Banking and investment have long occupied a defined, but contained, space within South Africa’s financial system. For decades, Shari’ah-compliant products have served a committed client base seeking alternatives to interest-based finance. What is shifting now is not simply demand within that community, but the broader relevance of Islamic finance in an era marked by ethical scrutiny, ESG fatigue and persistent financial exclusion.

At its core, Islamic finance is structured around a different conception of money and risk. Interest is prohibited. Transactions must be linked to tangible assets or identifiable economic activity. Excessive uncertainty and speculation are restricted. Profit and risk are shared between contracting parties. In practice, this produces financing models that are asset-backed and more directly tied to the real economy than many conventional instruments.

The question for South Africa is whether these principles translate into structural relevance, or whether Shari’ah Banking remains a parallel offering operating within the same macroeconomic constraints as the wider system.

South Africa’s financial sector is sophisticated, concentrated and tightly regulated. Shari’ah Banking operates within that framework, not outside it. The country issued its first sovereign sukuk in 2014, a US$500 million international offering that was heavily oversubscribed and signalled strong global appetite for Shari’ah-compliant exposure to the country. Nearly a decade later, the state returned to the market with a R20.4 billion domestic sukuk issuance in 2023, suggesting a renewed effort to deepen Islamic capital instruments locally. Yet Shari’ah Banking assets still represent a small fraction of total banking activity. Those early breakthroughs have not yet translated into a deep, liquid Islamic capital market.

The broader investment climate has also shifted. Environmental, social and governance frameworks are now embedded across global markets, yet scepticism around ESG labelling has grown. Islamic finance presents a structurally different model. Its ethical constraints are embedded in contract design, not applied as screening overlays. Rather than filtering out certain sectors after the fact, it structures the transaction itself around asset backing and shared risk. In practice, this extends to treasury management, where Shari’ah-compliant funds are ring-fenced rather than pooled into conventional banking structures. That distinction is technical, but consequential.

That difference becomes more visible in periods of economic stress. Because Islamic finance discourages excessive leverage and speculative exposure, it tends to favour tangible sectors such as property, trade and infrastructure. While Islamic banks are not immune to macroeconomic shocks, their balance sheets are shaped by rules that constrain certain forms of risk concentration.

South Africa’s constraint, however, is not a lack of banking sophistication but a shortage of productive absorption. The financial system is deep, yet exclusion persists. Small enterprises struggle to secure affordable capital. Youth unemployment remains entrenched. Housing backlogs endure. Industry data suggest that Shari’ah-compliant deposits across banking and asset management materially exceed Shari’ah Banking assets, indicating surplus liquidity within the system and untapped room for asset deployment. Islamic finance, with its partnership-based and asset-backed structures, is often presented as naturally aligned to the real economy. The harder question is whether it can operate at scale within a low-growth environment. Can risk-sharing models expand access without tightening underwriting standards? Can asset-backed financing meaningfully penetrate informal and township economies? Ethical architecture alone does not resolve structural unemployment. Scale and balance sheet commitment determine impact.

There is also a strategic dimension. South Africa positions itself as a gateway between African markets and global capital. Islamic finance is a major force in parts of the Middle East and Southeast Asia. The demographic reality across much of the continent, particularly north of the Sahara, suggests a substantial addressable market for Shari’ah-compliant finance if regulatory frameworks align. A more consistent domestic sukuk programme could strengthen ties with those capital pools and diversify funding sources for infrastructure and development. Corporate and municipal issuers could potentially tap Shari’ah-compliant markets, provided regulatory clarity and liquidity support such expansion.

As the sector matures, one of its emerging challenges is technological: much of Shari’ah Banking infrastructure still sits atop conventional systems that were not originally designed for Shari’ah processes. Developing bespoke systems may become part of the next phase of market deepening.

Shari’ah Banking will not displace conventional finance. Nor is it intended to. Its relevance lies in whether it can demonstrate durability, transparency and scale within South Africa’s existing system. If it remains confined to a defined retail base, its impact will be limited. If it evolves into a credible channel for infrastructure funding, SME expansion and institutional participation, it could assume a more strategic role in capital formation.

South Africa’s economic debate increasingly turns on execution and credibility. Islamic finance offers a disciplined framework anchored in asset backing and shared risk. Whether it becomes a meaningful lever for inclusive growth or remains a parallel stream will depend on scale and institutional commitment.

A decade of growth for Shari’ah Banking Standard Bank unit

Standard Bank’s Shari’ah Banking unit marks a decade in South Africa with sustained growth, expanding business banking capabilities and a clear ambition to scale Shari’ah-compliant finance across the continent.

Standard Bank’s Shari’ah Banking unit marks ten years of Shari’ah-compliant banking in South Africa this year, having launched locally in 2016.

Since inception, the division has recorded a compounded annual growth rate of 21%, reflecting sustained demand in a segment that is steadily broadening beyond its traditional base.

“We’ve experienced a compounded annual growth rate of 21% since inception, which is aligned with global industry norms,” says Mohammed Ameen Hassen, Head of Shari’ah Banking at Standard Bank.

From the outset, the bank prioritised building a comprehensive Shari’ah-compliant platform for business clients rather than focusing predominantly on the retail market. 

Today, the offering spans transactional banking, savings and investment products, Shari’ah-compliant overdrafts, asset finance, property finance, term financing, treasury management and foreign exchange hedging for cross-border clients.

The unit has also strengthened its capital markets advisory capability. Standard Bank acted as one of the lead arrangers and the Shari’ah technical lead on South Africa’s rand-denominated sovereign sukuk, contributing to the development of the country’s Islamic capital market.

Islamic finance operates on two core principles.

“There are both quantitative and qualitative elements,” Hassen explains. “Quantitatively, we ensure that interest is not present in the transaction. Qualitatively, we ensure that funds are not deployed into non-permissible sectors.”

That distinction is reflected in treasury management. “We ring-fence our treasury,” he says. “Funds deposited into Shari’ah-compliant accounts do not roll up into the conventional treasury.”

Governance follows global standards set by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI). An independent Shari’ah board comprising at least three scholars reviews products, processes and financial flows. Internal Shari’ah risk oversight ensures operational compliance on a day-to-day basis.

Across the South African industry, Shari’ah Banking and asset management manage substantial client liquidity. Hassen notes that deposits exceed Shari’ah Banking assets, indicating surplus capital within the system and room for further asset deployment into productive, Shari’ah-compliant activity.

Innovation has also defined the past decade. The unit has launched several first-to-market Shari’ah-compliant products in Southern Africa, including an overdraft facility, unsecured fintech-enabled lending solutions and an AI-enabled branch capability supported by AWS Connect.

Technology underpins the model, from treasury segregation to digital product delivery. As the sector matures, Hassen argues there is scope for more bespoke technology built specifically for Islamic finance, reducing reliance on conventional systems that were not designed with Shari’ah processes in mind.

Looking ahead, the ambition extends beyond South Africa.

“As the largest bank in Africa by assets, our aspiration is to become the largest Shari’ah-compliant financial services provider on the continent,” Hassen says. He points to planned expansion into additional African markets and to engagement with regulators to ensure tax and legal frameworks support efficient product delivery.

With Islamic finance globally still young compared to conventional banking, the unit is positioning itself for long-term growth. Ten years in, the focus remains on scaling the business franchise, deepening capital markets participation and expanding Shari’ah Banking across Africa. The next phase will test that ambition.