Islamic finance: “zero interest” lending is marketing, according to Dr. Daouda Zouré, former World Bank economist

With a customer base of around 30,000, Islamic Finance offers a range of services based on customer needs and at zero interest rates. Can a bank operate without interest? Is it a business strategy?

The Islamic branch called “Coris Bank Baraka”, as part of its business, carries out financial and commercial activities according to the rules and principles of Muslim jurisprudence, in particular the “chari’a”. It works according to five classified criteria. They are the prohibition of interest or usury (Riba), the prohibition of sectors deemed illegal such as alcohol, cigarettes, excessive armament, the prohibition of all that is uncertainty, excessive speculation. Islamic finance is also supported by material goods.

And as a last resort, it is the principle of sharing the profits or losses related to any financial transaction. “Islamic finance neither competes nor competes with existing finance. It only opens up another way of offering financing to the people who benefit from it ”, clarified Yaya Sidibé, the head of development of Islamic finance activities at the level of Coris holding. From this point of view, this finance wants to be participatory, ethical and responsible. With this new financing solution available in all its branches, CBI wants to contribute to the development of the Burkinabè economy.

Particularly aimed at all those who wish to invest, save, lend or borrow ethically and in compliance with the moral code of Islamic finance, it carries out resource mobilization activities through the investment account, and the Murabaha account which is a product in to which the client contributes his funds and the bank, with its experience, strengthens them. Both share the profits that will be generated as a result of the activity carried out. Then there are financing products like Murabaha Financing which is a buy and sell product. At this level, the agency proceeds to the cash acquisition of any property upon the client’s recommendation and resale to the client with a profit margin that returns to the bank.

Alongside this, there are other forms of financing including IJARA which is leasing, assignment and surety (…). This new solution does not forget the actors of the informal sector, reassures Sidibé. It also has products adapted to their location. The latter deposit their funds in the bank through the wadi’a Précaution account adapted to their situation. In addition, Coris Bank Baraka aims to support them in the development of their business: acquisition of production equipment, transport equipment, stock of goods, etc. To register, you must be bankable and have the necessary guarantees.

According to the head of business development, Yaya Sidibé, Islamic finance is an ethical and responsible solution for everyone (Muslims and non-Muslims)

Without interest rate

Paradoxically, Islamic finance remains unknown to informal sector actors. The National Council for the Informal Economy of Burkina Faso (CNEI-BF) says it has no knowledge of Islamic finance. “We have never benefited from it and we do not know the terms. To apply for funds for the activities of our members, you must first know the fund. But we are not aware of it ”, confirmed the general secretary of the CNEI-BF, Saidou Zangré. However, he marked the council’s willingness to receive this type of funding for the needs of members, especially since the problem of access to finance is a primary concern for workers in the shadow economy.

The head of development of Islamic finance activities has ensured that the agency complies with the regulations of the Central Bank of West African States (BCEAO). And it is in this that the financial institution has issued two provisions that regulate the activity of Islamic finance. This is instruction 00203/2018 relating to the mode of operation of Islamic finance and instruction 00405/2018 relating to the various products of Islamic finance. With this innovation, the bank brings interest.

For the borrower, it is therefore a “zero interest” loan, repayable without interest. “There are no interest rates in Islamic finance. On the contrary, we generate profit margins that allow us to easily make our businesses profitable. The rate of this margin is not known. It is negotiated. Furthermore, we take into account the competitive environment in its adjustment ”, confided Mr. Sidibé. He immediately clarified the two concepts. According to him, margin is the sum of a capital factor plus a labor factor, while interest is a surplus on a capital.

The defects of Islamic finance

Can a bank operate without interest? We contacted a former World Bank economist to remove any ambiguity. According to Dr. Daouda Zouré, the concept is good, but feasibility is not possible as it contradicts banking rules in general. “Even subsidized rates outside, for example, bank regulations, if you take deposit rates in banks ranging from 5 to 6%, it is impossible for you to apply rates outside of that. This is the rather difficult situation of the implementation of this institution. The question also of the interest in Islamic finance that is perceived in the principle of Islam makes the situation even more complex ”, he underlined.

Countries like Senegal and Mali have tried the experiment, but have immediately thrown in the towel. According to Dr. Zouré, Islamic finance could work if only it were located in another economic logic such as the subsidized rates of 1.5% that allow you to cover the bank’s expenses. Even with this, he wonders if it won’t affect the bank’s profitability and cause internal problems at the same time. In any case, everything will depend on the upstream policy of the central bank and the country’s financial policy.

For the general secretary of the National Council for the informal economy, Saidou Zangré, the actors are unaware of the existence of Islamic finance

The former World Bank economist took the opportunity to make recommendations to the state of Burkinabe. He asked him to play his role as an actor in the economy and to review monetary policy. “In the sub-region since independence, there are state banks that provide financial loans to citizens. At home, in Burkina Faso, we killed all the state banks (BIB, etc.) due to mismanagement. These banks have been taken over by the private sector, ”he complained.

The agency (CB Baraka) shows satisfactory indicators regarding its customer base estimated at around 30,000 people. How has this funding been able to help them develop their businesses? Our attempt to get in touch with one of the agency’s clients was unsuccessful. It would mean that there are unspoken things. What is the agency trying to hide from the public? When we close our article, these concerns have not been addressed. But it doesn’t matter, “the best customers are non-Muslims”. So to speak, Islamic finance is for everyone without distinction of religion.

Aissata Laure G. Sidibé

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