A wind of change is about to blow through the West African Monetary Union (WAMU)’s member states as the Central Bank of West African States (BCEAO) is currently working on the introduction of a regulatory framework dedicated to Islamic finance, in order to boost the development of the industry in the region. MARC ROUSSOT reports.
The bill accommodating fully-fledged Islamic microfinance companies, adopted at the end of September 2017 by the ministers of finance of the WAMU’s member states, is the first of a series of new regulations expected to be put in place in the coming months even though no clear timeline has been laid out yet.
The new regulations to be introduced will address a wide range of issues like Sukuk, Shariah compliance, Islamic bank’s governance, refinancing operations, tax treatment and accounting. Several propositions have already been placed on the table.
In terms of Shariah compliance for instance, the BCEAO’s draft law requires every credit institution and microfinance company offering Islamic products to establish a ‘Compliance Council’ on Islamic finance that will advise the financial institution on Shariah compliance, analyze and supervise its operations to guarantee Shariah compliance, examine and approve Shariah compliance reports on a yearly basis and provide an independent opinion on the Shariah compliance of the financial institution’s operations by delivering a ‘Certificate of Conformity’.
A shot in the arm
The WAMU’s regulatory authorities have been accommodating Islamic finance since back in the 1980s. It led to the inception of Banque Islamique du Senegal in 1982 and in 1997, Banque Islamique du Niger.
However, while Islamic finance has been growing rapidly over the past 30 years, the industry has remained quite stagnant in Africa as Banque Islamique du Senegal and Banque Islamique du Niger’s assets represent only 2% of the total banking assets of the WAMU.
In this context, the BCEAO became aware of the industry’s need of a shot in the arm and heavily considered the revamp of its regulatory framework, with the goal of increasing the level of bancarization in the WAMU which reached 16.1% of the population in 2015, according to the BCEAO’s data, and diversifying its sources of financing as well as solidifying the banking system’s resilience.
As a result, the BCEAO signed an MoU with the IDB, enabling the apex bank to send a delegation on a visit to Malaysia and Bahrain in order to learn about their regulatory frameworks.
The mission resulted in a roadmap aiming to introduce two distinct regulatory frameworks dedicated to Islamic banks and Islamic microfinance companies.