On its own, Senegal recognizes Islamic financing and has, since 2012, allowed for its General Tax Code to consider Islamic financing operations. As of 2018, the BCEAO also introduced a regulatory framework under which the banks, financial institutions and microfinance institutions in each member state will be able to execute Islamic financing activities.
The BCEAO introduced a series of four instructions in 2018 that set the parameters for Islamic financing in member states that include:
- Instruction No 002-03-2018 on the specific provisions applicable to credit institutions engaged in Islamic finance activity
- Instruction No 004-05-2018 on the technical characteristics of Islamic finance operations carried out by WAEMU credit institutions
- Instruction No 03-03-2018 on specific provisions for decentralized financial systems engaged in Islamic finance activity, and
- Instruction No 005-05-2018 on the technical characteristics of Islamic finance operations carried out by decentralized financial systems of the WAEMU
This reform is a direct result of Senegal’s advocacy for acceptance of Islamic finance within the economic bloc and resulted from a massive study undertaken by Senegal in order to best formulate the path forward. In addition to working with the WAEMU Senegal has also been actively engaged with the IsDB. This engagement has resulted in the Program for the Promotion of Islamic Microfinance in Senegal (PROMISE). Through PROMISE, the IsDB will support Senegalese microentrepreneurs with US$60 million in financing for a National Program for Islamic Microfinance.
The primary purpose of PROMISE is to contribute to the country’s socioeconomic development. The hope is that this financing will allow for an increase in economic activity and will, in turn, create jobs and improve livelihoods. PROMISE is a welcome initiative in the country, as it will target some of the most vulnerable groups in the poorest communities.
Also with the assistance of the IsDB in 2015, Senegal adopted Law No 2015-11, which is based on the Moroccan Code of Habous and regulates the use of Waqf law in the country. This law
defines Waqf as any property whose usufruct is allowed on a perpetual or temporary basis to a public or private charitable activity (Article 1 of Law No 2015-11). Under the law, there are four types of Waqf established:
- a public Waqf is a property constituted as a Waqf, managed by a public authority and allocated to a charitable activity and for an activity of general interest
- a family/private Waqf is a Waqf property for the benefit of certain family members or the descendants of the donor or a third party (private individual or corporation)
- a mixed Waqf is a property allocated partly for the benefit of a public activity, and partly to a designated private individual or his/her descendants or exclusively to a designated private individual, and
- a public interest Waqf is a Waqf having a public interest purpose (eg combating a disease such as AIDS or cancer) managed by a private individual or a corporate entity.
This law also established the Waqf High Authority, an independent administrative body, which shall be in charge of administration and supervision of Waqf across the country. According to Article 27 of Law No 2015-11 , the president of Senegal later defined the organization and operation of the Waqf High Authority by way of Presidential Decree No 2016-449 of the 14th April 2016.
Since introducing these laws and paving the way for the WAEMU to embrace Islamic financing, Senegal has pushed forward with growing Islamic finance in the country. The government is actively working toward educating the general population on Islamic finance and the various programs that have been introduced to assist vulnerable populations, including PROMISE.
The private sector has also begun to slowly enter Islamic financing. The first Islamic common investment fund was established by the CGF Bourse Company in 2017. In addition, there exists an Islamic mutual fund named FCP Al Baraka; an Islamic window at Coris Bank International Senegal;
an Islamic Bank of Senegal; Pamecas, a microfinance institution that has an Islamic window; and there is an Islamic window of Sen Assurances VIE at Sen Takaful an insurance company.
With the regulatory framework now in place to support Islamic financing in the country, the future prospects for this sector in Senegal are strong. Senegal’s economy as a whole has been steadily growing. This, coupled with the support of the WAEMU, which has had tremendous success in maintaining stability in the economic bloc, shows promising signs for financial institutions and should facilitate the entrance of additional Islamic banks.
The Senegalese government appears poised to support and encourage Islamic financing in the country, but will need to make a stronger effort if the country is to truly become a champion of the systems it has now put in place.
This article appears in Islamic Finance News and is accessible here.