First National Bank's (FNB) Islamic finance division has been rocked by the resignation of the unit's entire board following the appointment of a new CEO, previously employed by Absa.
The board quit weeks after FNB last month poached the head of Absa Islamic finance, Amman Muhammad, who is expected to play a pivotal role in FNB's plans to expand into Africa, which has an estimated Muslim population of 400m.
In their resignation letter, the (former) FNB Islamic finance board members say a change of attitude was discerned soon after Muhammad's appointment. They detected a lack of commitment to the more conservative definition of Islamic finance followed under their previous CEO, Ebrahim Patel, who left earlier this year. Meetings were held with management to iron out problems but they felt disappointed by the non-implementation of decisions agreed on. "Honesty, integrity and trust are the cornerstone of our involvement," they say.
Central to the dispute is how to reconcile the charging of costs on financial products such as loans or deposits, in a way that does not amount to charging interest, which is prohibited under sharia law. Also affected are tax charges, as hybrid forms of Vat tailored to sharia are included in legislation yet to be promulgated due to differences of opinion over enforceability. National treasury says it will soon provide guidelines for the issuing of "sukuk" or Islamic bonds.
The three-member board that quit has warned adherents of sharia doing business with FNB that "we cannot vouch for their products". Products that have been endorsed will remain valid as long as there are no changes.
In a statement, Muhammad denies FNB is veering away from sharia-compliant products. He says FNB terminated the services of the previous board and has replaced it with a new sharia supervisory oversight committee. "FNB and the members of the sharia board had differing views of the role of the board in the operational management of the business," he says. The new oversight committee is composed of two experienced scholars who will monitor and ensure sharia compliance of FNB products.
The bank's Africa expansion plans are on track, Muhammad says. A new financial officer and investment specialist have been appointed and will be involved with the widening of the product set.
The issue of sharia-compliant banking is being debated internationally, sparked by growing interest in Islamic bonds.