Over the past decade, the African economy has consistently grown faster than the developing world. It is heartening to note the fact that this time growth is less dependent on its volatile commodity exports, instead increasing domestic consumption due to burgeoning a middle class with good disposable income levels is fuelling the growth. 

Buoyed by robust domestic demand, macroeconomic stability, ongoing economic reforms and strong export performance, GDP growth for Sub Saharan Africa is expected to reach 5.3 per cent in 2014 and 5.5 per cent in 2015.

Besides the traditional Islamic banking markets of the Middle East and Malaysia, many countries in Asia and Africa are now accepting and recognising Shari'ah banking as a more prudent and stable banking system. Unlike conventional institutions, which follow the directives of banking regulation, Islamic banks strictly adhere to the principles of Shari'ah law.

The African continent is home to about a third of the global Muslim population and 40 per cent of the total 1.1 billion populations in Africa are Muslims. Africa has the youngest population among all the continents--50 per cent of Africans are 19 years old or younger. A new and confident African middle class is emerging, embracing the digital revolution and leading the world in innovations such as mobile payments. For banks in Africa, besides geographic expansion, innovative Islamic product offerings could be a key differentiator for enhanced customer satisfaction, productivity improvement and profitability.

Shari'ah-compliant banking has evolved to become an integral part of the global financial system and witnessed considerable progress worldwide. Islamic finance investments in 2014 are estimated at about $2 trillion and it is anticipated they will increase to $2.5 trillion next year. Although the Shari'ah-compliant banking industry currently only constitutes 1.6 per cent of the total assets of the 50 largest banks in the world, it remains one of the fastest growing segments in the global financial services sector.

All financing contracts in Islamic banking between bank and customer are based on an underlying asset. In Murabaha finance, which is by far the most popular financing product, banks are compelled to declare the acquisition cost of the asset to the customer, which typically includes the basic purchase cost and other expenses for acquiring the asset. Customers will know the total settlement amount upfront which brings up the transparency and most importantly establishes mutual trust. Multiple product variants of Murabaha finance like trade Murabaha, share Murabaha, vehicle Murabaha and syndication Murabaha will help banks to meet the financing needs of different customer segments.

Islamic drawing accounts based on the principle of Wakala will help the banks and customers in a big way. While for banks they are assured of the contractual profit, for customers drawing accounts provides access to much sought working capital needs of the enterprise. Typical short term financing needs of the SME and corporate segment can be met by this product offering.

Many central banks in Africa are yet to rollout clear policy guidelines on Islamic banking, which is a key hindrance. Establishing the Shari'ah board comprised of eminent Islamic banking scholars and banking experts governing the policy guidelines is the need of the hour for respective central banks. African central banks could take a leaf from their Middle East counterpart's experience in Islamic banking.

It requires a more evolved legal and regulatory framework which could facilitate a quick rollout of Islamic banking, either as a wholly owned subsidiary or a window of conventional banking.

Shari'ah law prohibits payment of interest on savings accounts. An alternative solution to meet the market needs is tag the saving accounts to a Mudaraba pool and distribute the profit generated from Mudaraba pool investments in Islamic assets.

The collection of taxes on profit earned on Islamic deposits is prohibited as per Shari'ah law. Collection of tax cannot be mandated under the tenets of Islamic banking. Industry best practice is to collect Zakat on profit earned by savings and investment accounts, which can be used for charity purposes by the regulators.

The need of the hour in the Sub Saharan region is for suitable microfinance products that will cater to the less privileged sections of society. Qard Al Hasan (interest-free loans provided for welfare purposes) financing products with zero profit on the financing amount will help to structure micro-financing needs.

Looking to the future, growth opportunities in Africa are immense and Islamic banking offers huge potential for banks' rapid expansion in the market. 

Besides consumer banking, SME and corporate banking can be brought into the Islamic banking sector with the right set of product offerings that cater to these segments' working capital and term finance needs. In turn, central banks in different countries will need to facilitate strong regulatory and legal frameworks for Shari'ah-compliant banking.

Kenya was the first country to introduce Islamic banking in the Eastern and Central African region a decade ago, and while the business is still in transition, it has been growing steadily and shows big potential for future growth. The uptake of Islamic banking is projected to grow exponentially in Sub Saharan Africa. The Kenyan banking system is supervised by the Central Bank of Kenya (CBK). All banks, including those that follow Islamic banking principles, have to operate under the same framework as conventional banks.

Two Islamic banks, Gulf African Bank and First Community Bank, were licensed by CBK in 2007 and had a total of KES 15.4 billion ($170 million) in loans and advances in 2013.

The Finacle Islamic Banking Solution offers an integrated and comprehensive approach for Islamic banks to define and present Shari'ah-compliant products to their customers. The solution has end to end support for all Islamic asset financing products which include Murabaha, Ijara, Muntaiah Bittamleek, Ijara Mawsufah Fi Zimmah, Istisna, Mudaraba and Musharaka financing , as well as Islamic drawing accounts and liability products that include Mudaraba, Wakala and Wadia and commodity Murabaha. Strong product definition features, inbuilt workflows for each financing product, strict adherence to AAOIFI accounting for all Islamic banking products, and complete traceability for Shari'ah audits differentiate the solution from other core banking products in the Islamic banking space.