Mauritania is turning to Islamic finance to modernise its banking sector, trying to raise the number of people with accounts from its meagre levels today and in turn increase liquidity so banks can lend more to companies.
Many of the Islamic republic’s citizens are uncomfortable with western banking, opting for informal banking collectives or just “keeping money under the bed”, says one local banking executive.
Officials say that by encouraging Islamic finance, which follows religious principles such as bans on interest and gambling, it will entice more people to enter the formal financial sector, crucial to the wider economy.
Dieng Adama Boubou, director of banking supervision at the Mauritanian central bank, says that the goal was to increase the number of people with bank accounts from 10 per cent today to 25 per cent by 2018, partly by promoting Islamic banking.
“We have a strategy of financial inclusion,” he says, adding that only 4 per cent of people had accounts in 2006. “Developing Islamic finance is a key part of that.”
Moulay Abbas, president of Banque Mauritanienne pour le Commerce International, a commercial and retail bank based in Nouakchott, says: “We are pushing more into Islamic finance, targeting traditional commercial agents who are not formally banked.”
The idea is that the push will help a still relatively under-developed financial sector. It would increase the amount of money banks hold, which would help them support the local economy by giving more long-term loans and letters of credit.
One complaint often made against the Mauritanian financial system is that it is too much driven by relationships, with tribal background and personal connections crucial to getting credit. Mr Abbas says that way of doing business is a thing of the past. “Perhaps this was true 20 years ago, but not today,” he says.
But many entrepreneurs still feel securing long-term credit is tougher than it should be. If there were more money in the system, with more consumer bank accounts, it could help alleviate the problem, say analysts.
Islamic lenders such as Banque Muamelat As Sahiha and Banque Islamique de Mauritanie have launched in Mauritania in the past few years. The country now has 15 banks and 186 branches, up from 90 in 2011.
But the industry has been tested by the low iron ore price. The IMF mission this year wrote that while there were no immediate problems “liquidity [in the banks] is declining and the sector remains vulnerable to shocks”.
The IMF urged the central bank to continue its policy of the past few years of improving the regulatory framework, which was relatively undeveloped during the period of a tough military government in the 1980s and 1990s.
European banks have been attracted to Mauritania in recent years, but have had limited success in getting a foothold. Société Générale and BNP Paribas both launched operations in the country in 2007. But BNP has since sold its stake in its Mauritanian operation to two Moroccan lenders, Attijariwafa Bank and Banque Centrale Populaire, which are turning their attention to Islamic finance.
(Financial Times / 15 April 2015)
---Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com
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