Although the Sub Saharan African countries have large Muslim Population, Islamic Banking is a recent phenomenon in the continent and dates back to 1983 only, when the subsidiaries of Dar Al Maal Al Islami were established in the Republics of Guinea, Niger and Senegal. These three countries are predominantly Muslim, with total population of about 19 million of which Guinea represents 5.7 million, Niger 6.5 million and Senegal 6.5 million.  

The Muslim population of West Africa is traditional in their outlook which is manifested in their belief, word and action. Islam is making great claims upon the religious allegiance of African countries, since it has great advantages of literacy, history and international links.

The Sub Saharan African countries, since their independence, have been undergoing acute economic and financial difficulties. The problems of the region have been compounded by severe and prolonged drought which resulted in drastic fall in agricultural production - the mainstay of the economy of the region. In spite of some increase in concessional aid flows, the debt servicing problems of the countries in Africa continue to be severe. Although recent progress with long term restructuring of debts is somewhat promising there is urgent need for greater new assistance and long term restructuring of debt to improve the efficiency of assistance.

The economic development of the Sub Saharan African countries has also been retarded by formidable resource constrains which include a critical shortage of local skill and inadequate infrastructure and relatively late induction of the private sector into the mainstream of the economy. Shortage of foreign exchange led governments in Africa to restrict imports through tariff and quantitative restrictions. The massive nationalization of industries in several countries of the region did also lead to production setback and discouraged investments from abroad.

 However, since the early 1980s, there has been fundamental shift in the polices of some Sub Saharan countries including those where DMI Group operates — Guinea, Niger, Senegal. All these countries in West Africa are implementing major programmes of structural reforms in collaboration with the international Monetary Fund. These include policy measures to promote food self-sufficiency through greater incentives to agriculture, keeping real effective exchange rates competitive, in maintaining budgetary and monetary restraint arid encouragement of the private sector.

The current reforms of the Sub Saharan countries would need to be supplemented and complemented by continued flow of external assistance and other measures such as provision of adequate infrastructure, skills and institutional support.

 Let us now turn our attention towards the development of Islamic banking and investment activities in West Africa. In 1983, following high-level contacts in Guinea, Niger and Senegal, six subsidiaries were established by DMI in these countries — three in the Islamic banking and three in investment fields. The rationale for the establishment of these pioneering Islamic financial institutions by the DMI in Africa can be found in the declaration of its founders who stated that "It is religious duty to shelter Muslims throughout the world from the effects of Riba by providing access to Islamic financial institutions." The founders of DMI furthermore acknowledged the ethical and social utility to Ummat Al Islam through the growth of an Islamic financial system based on equity and social justice, in contrast to the Riba system.

 The capital structure of DMI Massaref and investment companies in the three African countries of Guinea, Niger and Senegal, at the time of their incorporation were as follows:

Guinea                  —Massaref                                          —700 Million Guinean franc

— Investment company           —230 Million Guinean franc

The total capital of the two entities thus amounts to 930 Million Guinean franc which is equivalent to US dollars 1.5 million.

In this context, I wish to underline that DMI subsidiaries in Guinea were the first private sector financial institutions to be permitted to operate in a fully nationalized system. The situation has, however, changed during the past few years and a large number of foreign commercial banks have been allowed to operate in Guinea - thus making the financial market of the country highly competitive.

The DMI subsidiaries in Niger were also established in 1983, with a capital of CFA 1,750 billion for Massaref and CFA 875 million for the investment company.

 The two subsidiaries in Senegal started their operation also in the same year with similar capital base as the Niger subsidiaries.

The experiences gained during the past five years by DMI, however, led it to the conclusion that for better functioning of its subsidiaries in West Africa and to make them commercially viable and financially profitable, it would be appropriate to merge the three investment company with the existing Massaref in the three countries. It would also avoid duplication of activities between the Massaref and the investment companies. Therefore, procedures for having three entities instead of six have been finalized and DMI has now only three banking subsidiaries in Guinea, Niger and Senegal.

 The merger of the Massaref and investment companies will enable DMI subsidiaries in West Africa to meet a wide range of local needs and help towards the conduct of their business activities in a cohesive manner. In the three countries of West Africa where DMI operates, the merged companies would be in a position to provide better services to their clients and keep expenses to a minimum. As on December 31, 1987, the total deposits in the three West African subsidiaries in Guinea, Niger and Senegal stood at about US $ 35 million including US $ 13.6 million of DMI Group funds. The number of accounts in these subsidiaries reached nearly 27,000 by the end of 1987 which should be considered as satisfactory, given the financial constraints prevailing in the region. It also speaks for the viability and acceptability of the Islamic Financial system.

 The operation of Islamic financial institutions in West Africa has been and arduous and painstaking job for the DMI management, since it was a pioneering experience. Continuous supervision, monitoring, provision of financial and technical help have been maintained from the Geneva headquarters since the beginning, to ensure the viability of these institutions. Some of the steps taken by their Boards of Directors to improve and rationalise the activities of DMI West African subsidiaries include:

 — Testing and implementing of proper accounting systems and procedures with internal control and correct classification and recording of accounts.

 — Strengthening of local management capabilities through on the job training and by the appointment of Tunisian banking experts in Niger and Guinea subsidiaries with the dual objective of improving the quality of the accounting systems, procedures and upgrading the management level of the subsidiaries.

— Improvement of the capability to provide better services to the clients.

— Screening and monitoring of financing operations and ensuring that adequate guarantees and collaterals arc taken.

— Containment of expenses for running the subsidiaries.

— Steps taken to introduce computerisation of operations in the subsidiaries to improve the quality of accounting and services and for the rapid transmission of financial information.

— The DMI subsidiaries in West Africa are receiving funds from other members of the DMI family, in particular from the Islamic investment company of the Gulf, and such funds are deployed mostly in trade financing activities, thus contributing towards the improvement of balance of trade situation of these countries. Such efforts would also help the DMI subsidiaries in West Africa to become profitable, since due to liquidity squeeze in these countries, they are not yet in a position to raise sufficient deposits locally to enable them to grant liberal financial facilities.

The subsidiaries in West Africa are maintaining close liaison with the central banks and other relevant governmental authorities in the respective countries of their operation.

 In spite of the difficulties mentioned earlier, the DMI subsidiaries in West Africa are gradually consolidating their position, although they are still falling short in their achievements, in comparison to the targets set. The business prospects of DMI subsidiaries in West Africa are, no doubt, closely linked with the overall economic and financial situation of these countries.

However, special niche for Islamic banks in the Muslim majority African countries definitely exists, which needs to be nurtured with care and patience. During the coming years, DMI subsidiaries in West Africa proposes to give maximum emphasis upon promotional efforts and the training and upgrading the personnel to enable them to provide satisfactory services to the clients and to meet the growing challenges of competition from the conventional banking system.

DMI Group would welcome collaboration of other Islamic financial institutions in promoting the economic and business development in West Africa. The Islamic financial institutions in the private sector, although not categorized as development assistance agencies, can play important catalytically role for the economic development of Africa through the mobilization and deployment of funds and resources of African Muslims in lucrative business activities with developmental orientation.

* The author is an eminent writer on African Banks.