The Successes and Prospects of the Islamic Financial System in The Gambia

The Gambia is one of the smallest countries in mainland Africa covering a land area of 11,000 square kilometers. Out of its 2.4 million population, 95.3% are Muslims. The Gambia is among the first countries in the West African subregion to license an Islamic bank. The Islamic financial system is evolving, currently with one Islamic bank, two Islamic microfinance institutions, two Takaful operators, one Islamic credit union and a window of Gambia Teachers’ Union Cooperative Credit Union. There are also other Islamic microfinance institutions and credit unions in the informal sector and not regulated by the Central Bank of The Gambia.

Review of 2022

The Islamic finance market has gone through commendable growth while operating in a fully dominated conventional environment, highlighting the growing prominence that Shariah compliant finance has in the financial sector in The Gambia. As of September 2022, Islamic finance assets represent 7.4% of total industry assets.

Meanwhile, as of the same period, Islamic banking assets represent 6.8% of total banking assets while the two Islamic microfinance companies controlled 13% of microfinance assets and the two Takaful companies controlled 15.7% of insurance assets.

The Gambia does not have a separate legal and regulatory framework for the operation of Islamic financial institutions. The industry is regulated mainly through Part III, Sections 12 to 17 of the Banking Act 2009 that deal with the regulation and supervision of Islamic banks. The Insurance Amendment Act 2006 caters for the licenses, regulation and supervision of Takaful operation and the Non-Bank Financial Institution Act 2016 caters for the regulation and supervision of Islamic microfinance institutions.

Following the tremendous success in the Islamic financial system in The Gambia in 2022, for the first time, the central bank has issued guidelines for the regulation and supervision of Islamic financial institutions covering banking, Takaful operation and microfinance.

The guidelines which will come into effect on the 1st January 2023 cover key areas including Shariah governance, financial reporting, product development and such. The guidelines are expected to complement the current regulatory framework and enhance the reputation of the Islamic financial institutions as well as consolidate the confidence of customers in the products and services offered by these institutions.

The two Islamic microfinance projects funded by the IsDB — The Small Ruminant Production Enhancement Project (SRPEP) and the Rice Value Chain Transformation Programme (RRVCDP) — continue to register remarkable success. In line with component B of the project, access to Islamic financing and capacity-building, the SRPEP conducted a three-day training program on Islamic microfinancing in October 2022 as well as funded the construction of community pastures, veterinary drug outlets, fattening and breeding schemes, milk collection centers, slaughterhouses, meat stalls and such.

Meanwhile, the RRVCDP, through its implementing partner SDF, also conducted a three-day Islamic microfinance training program to build the capacities of stakeholders on the different products of Islamic microfinance in March 2022. To boost the productivity, processing and marketing of rice, the RRVCDP recently constructed and handed over drying floors and stores to the beneficiary communities.

The Gambia continues to grapple with capacity issues especially Shariah advisors and product development specialists. Nevertheless, the talent pool is growing with more people taking Master’s and PhD programs in Islamic finance. To ease the capacity problem currently facing Islamic financial institutions, the University of The Gambia has introduced the Bachelor of Science in Islamic Finance degree program at the School of Business and Public Administration. The introduction of this degree program complements other short-term training conducted by the Management Development Institute, Equity Solutionz and Institute of Islamic Economics and Finance.

Preview of 2023 and conclusion

We are expecting a double-digit growth in the Islamic financial services industry with the introduction of Islamic windows, the Islamic capital market and the issuance of the first sovereign Sukuk. The introduction of these windows and the capital market is expected to strengthen the Islamic finance industry and provide new opportunities for investment in the sector. The Islamic capital market in particular will ease the liquidity management constraints faced by Islamic financial institutions and raise the needed funds for the country’s infrastructure challenges.

The first Family Takaful company, Salam Family Takaful, which was licensed in 2022, has resulted in a total of three Takaful operators in The Gambia. However, the company is expected to only start operations in 2023. Moreover, we are expecting the conversion of a microfinance institution that has already appointed an Islamic financial specialist and which offers a number of Islamic finance products.

Furthermore, the central bank is expected to develop and issue new Murabahah guidelines that will encourage Islamic financial institutions to explore new Shariah contracts in their product development, given that Murabahah currently represents almost 80% of financings in Islamic finance contracts.

Original Source: Islamic Finance News