The Viability of Islamic Banking and Finance in a Capitalist Economy: A South African Case Study

Abstract

Muslims in post-apartheid South Africa have been seeking to introduce stricter Islamic codes in the public and private domains to redefine the kind of Muslims they want to be. An important aspect of this process is the attempt to reconcile living in a “non-Islamic” country with Islamic principles relating to finance, banking, and investment. Muslims are prohibited from engaging in interest (riba)-related economic activities. Muslim minorities worldwide are pioneering efforts in shariah-complaint finance. This includes prohibitions on: (1) investments in businesses whose practices are in conflict with Islamic teachings, such as those that engage in gambling or pornography, or the sale or consumption of alcohol and pork; (2) investments offering fixed interest-based return; (3) investments in indebted companies paying interest on servicing their debt; and (4) speculation in derivative transactions on the stock exchange. This paper examines the growth of Islamic finance, banking, and investment in post-apartheid South Africa. What is its history and how does it differ from existing formal banking and finance operations? Why are Muslims embarking on these ventures? What is Islamic banking as a religious and ethical phenomenon? Which segment of the Muslim population is most au faire with Islamic banking and finance? What does Islamic banking represent in socio-political terms and what are the long-term prospects for the industry in South Africa?