VZCZCXRO0350
PP RUEHBC RUEHDA RUEHDBU RUEHDE RUEHDH RUEHGI RUEHJS RUEHKUK RUEHLH
RUEHPW RUEHROV RUEHTRO
DE RUEHDK #0479/01 1051303
ZNR UUUUU ZZH
P 151303Z APR 09
FM AMEMBASSY DAKAR
TO RUEHC/SECSTATE WASHDC PRIORITY 2238
INFO RUCNISL/ISLAMIC COLLECTIVE PRIORITY
RUEAWJA/DEPT OF JUSTICE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEHLMC/MCC WASHDC

UNCLAS SECTION 01 OF 03 DAKAR 000479 
 
SIPDIS 
 
SENSITIVE 
 
DEPT FOR AF/W, AF/EPS AND EB/IFD/ODF 
TREASURY FOR AFRICA DESK, OASIA/EBARBER 
 
E.O. 12958: N/A 
TAGS: EFIN EINV ECON SA SG
SUBJECT: SENEGAL'S ISLAMIC BANK IS READY TO EXPAND 
 
REF:  DAKAR 468 (NOTAL) 
 
DAKAR 00000479  001.2 OF 003 
 
 
¶1.  (SBU) Summary:  As reported in Reftel, Senegal's banking sector 
will likely consolidate around a number of big, international banks 
in the coming years.  However, the Banque Islamique du Senegal 
(BIS), is bucking that trend and has plans to gain market share 
throughout Senegal.  During an April 7 meeting, Azhar Khan, the 
bank's General Manager, highlighted the BIS's sharia-compliant 
products and services, and his positive outlook for the bank's 
prospects in Senegal.  The majority of BIS's business involves trade 
financing.  Real estate investments are also significant.  Providing 
financial services for the annual pilgrimage to Mecca has also been 
a boon to the company.  Many of the bank's customers and employees 
are non-Muslim.  The BIS has kept a relatively low profile, in large 
part because Islamic banks have had a rocky history in Senegal. 
Khan claims that his bank strictly follows reporting requirements 
for suspicious transactions.  The BIS has money transfer 
partnerships with Money Express and Ryan Arabia, but its attempt to 
secure a deal with U.S.-based MoneyGram appears to have failed.  End 
summary. 
 
ISLAMIC BANKING, NOT AN ISLAMIST BANK 
-------------------------------------- 
¶2.  (SBU) During an April 7 meeting with EconCouns and Economic 
Specialist, Azhar Khan, General Manager of the Banque Islamique du 
Senegal (BIS), Senegal's only formal sector Islamic bank, 
underscored that the bank offers its customers sharia-compliant 
banking products and services, but is not catering solely to a 
Muslim clientele.  [Note:  informal "Islamic banking" does exist 
within Senegal's Muslim brotherhoods, mostly for trade financing and 
real estate projects.  End note.]  Khan stated that the bank 
welcomes all customers, regardless of religious affiliation.  He 
noted that his assistant is Catholic, and the bank staff includes 33 
Catholics out of a workforce of 200 employees (in a country where an 
estimated 95 percent of the population is Muslim).  In fact, during 
the visit, EconCouns did not notice any staff or customer wearing 
obviously religious attire; most of the women were not wearing any 
form of head covering.  Khan (a French-nationalized Pakistani who 
started his banking career with Bank of America in London) was also 
critical of Islamic fundamentalists and terrorist tactics, claiming 
that the proponents of this approach represent less than five 
percent of the world's Muslim population.  He added that he, 
himself, wanted "to be allowed to practice his religion as he saw 
fit." 
 
¶3.  (SBU) In Khan's view, Islamic banking is not easy, and is a 
risky business compared to traditional banking, because the bank 
must use the customers' money to finance specific ventures that will 
turn a profit.  While BIS's basic savings accounts do not pay any 
interest on deposits, they may create a longer-term profit for 
specific purposes (such as housing construction, equipment 
purchases, or saving for the Hadj pilgrimage).  Investment 
opportunities are based on a system of sharing profits and losses, 
using a "safekeeping" arrangement between the depositors and the 
bank.  For basic accounts, depositors can withdraw money at any time 
and clients can request checking accounts that operate the same as 
traditional banks.  The BIS offers a number of other traditional 
services, including foreign exchange, a broad range of payment 
clearing mechanisms, guaranteed bank drafts, travelers' checks, and 
soon, credit and ATM cards. 
 
¶4.  Investment accounts are based on term deposits which cannot be 
withdrawn before maturity but pay a pre-negotiated rate of return. 
The bank is responsible for using those funds for profitable 
ventures.  In theory, the rate of return could be positive or 
negative, but according to Khan, in practice the returns have always 
been positive and quite comparable to traditional rates offered by 
commercial banks on their term deposits.  Part of the success is due 
to BIS's ability to renegotiate the terms of these investment 
accounts with its clients.  As an Islamic bank, the BIS does not 
invest in the tourism sector. 
 
¶5.  According to Khan, the bank's main business is in equity and 
trade financing (about 60 percent of the bank's activity) and the 
bank supports a wide range of mostly small-scale traders.  Importers 
of rice, cooking gas, computer equipment, and other consumer goods 
are a large percentage of the bank's customer base.  Another very 
profitable business line for the BIS has been financing Senegal's 
participation in the Hadj.  Khan explained that the GOS offers the 
contract via public tender, and the BIS has won that tender for the 
past six years, beating out the likes of Ecobank and Citibank.  Khan 
believes that the BIS is the only bank in the country that can now 
handle this event, providing a network to efficiently monitor the 
organization in Mecca, securing lodging, air tickets, and local 
transportation for about 10,000 Senegalese pilgrims per year.  Khan 
 
DAKAR 00000479  002.2 OF 003 
 
 
stated that the pilgrimage operation brings BIS as much as USD 20 
million in profit per year. 
 
ROCKY PAST BUT OPTIMISTIC ABOUT THE FUTURE 
------------------------------------------ 
¶6.  (SBU) Econ staff were surprised at the size of BIS's operation, 
and asked why the bank did not have a higher public profile.  Khan 
replied that Islamic banking in Senegal had a poor history and that 
he did not want to promote the bank too fast for fear of generating 
a public backlash.  Senegal's first experiment with Islamic banking 
-- Masraf Faycal Islamic (MFI) -- was founded in 1983 following the 
1982 visit to Dakar of Saudi King Mohamed Ben Faycal.  MFI followed 
with branches in Conakry and Niamey.  MFI was owned by Saudi-based 
Dar Al Maal Al Islam (DMI), which controlled 85 percent of the 
shares, and the late Senegalese businessman Djily Mbaye.  MFI's 
activities were very limited, specializing in savings accounts and 
consumer project financing, including housing.  The 1980s banking 
crisis in the West African Economic and Monetary Union (WAEMU) was 
too much for MFI's small market share and the bank closed in 1989, 
with many customers losing their savings and investments. 
 
¶7.  (SBU) In 1995, after the financial crisis and the devaluation of 
the Franc CFA, the government of Saudi Arabia encouraged Senegal to 
relaunch an Islamic bank. The DMI contributed 44 percent and was 
joined by the Jeddah-based Islamic Development Bank (IDB) (33 
percent) and the GOS (23 percent).  In 2001, the BIS registered its 
first positive results.  In January 2002, the DMI fully divested 
itself from the BIS and the IDB's new subsidiary, the Islamic 
Corporation for Private Investment (ICV), assumed 77 percent of 
BIS's capital, with the GOS retaining the remaining 23 percent. 
From 2001 to 2007, BIS's total assets increased from USD 20 million 
to USD 102 million, deposits increased from USD 18 million to USD 90 
million, and credits to customers went up from USD 14 million to USD 
80 million.  Despite this growth, the BIS is still one of Senegal's 
smaller commercial banks.  The BIS is expecting an additional 
infusion of cash from the IDB to spearhead a campaign to raise USD 
20 million in new capital by December 2009. 
 
¶8.  (SBU) With the new capital, Kahn is optimistic about BIS's 
future.  The bank is planning to build a new headquarters in Dakar, 
expand from its current four branches (three in Dakar and one in 
Touba) to twenty throughout the country, establish new credit and 
bank card services, and begin a new marketing campaign.  The goal, 
according to Khan, is to increase its customer base from three to 
fifteen percent of the country's total banking clientele.  When 
asked, Khan said that the BIS has no trouble meeting the WAEMU 
Central Bank's (BCEAO) higher cash reserve requirements for 
commercial banks, with minimum deposits increasing from CFA 1 
billion to CFA 5 billion (USD 2-10 million) by the end of 2009, and 
further increase to CFA 10 billion by December 31, 2010.  A good 
contact at Citigroup opined that the BIS is probably too small to 
survive the BCEAO's higher reserve requirements, but this is 
evidently not the case. 
 
BIS HAS ADVANTAGES IN THE POOR ECONOMY 
-------------------------------------- 
¶9.  (SBU) According to Khan, many Senegalese in Asian and Arabic 
countries use the BIS network for sending money to their relatives 
in Senegal via the Ryan Arabic service, Senegal Post's Money Express 
service, or via wire transfers.  With this connection, BIS has had 
success linking incoming remittances directly to new local real 
estate investments.  However, Khan noted that since mid-2008 BIS has 
been witnessing a drop of about 25-30 percent in remittance activity 
as the result of the global recession.  He feared that a continuing 
decline could affect seriously Senegal's the construction and 
housing sector, where, he believes, there is already an 
unsustainable price bubble, particularly for high-end properties. 
Khan stated that some commercial and residential real estate 
investors are already having difficulties with low demand and that 
many commercial banks will likely have to deal with higher rates of 
non-performing loans in the near future.  For the BIS, FY 2008 was a 
good year, according to Khan, but he admits that FY 2009 is 
difficult, largely because of the difficulties in the real estate 
sector.  Real estate investments currently account for approximately 
10 percent of the bank's activity.  At the same time, because of 
BIS's good business in trade financing on important staples, like 
rice and cooking gas, and its Hadj contracts, the BIS should be able 
to weather the storm better than many traditional banks, in Khan's 
opinion.  As proof of the bank's stability, Khan noted that one of 
BIS's large foreign partners used to require a 100 percent guarantee 
to confirm a letter of credit, but now asks for only 30 percent. 
 
¶10.  (SBU) Regarding the current financial crisis, Khan noted that 
the BIS, and Islamic banks in general, are not greatly impacted from 
the collapse of the derivatives and other "paper" markets.  "We 
 
DAKAR 00000479  003.2 OF 003 
 
 
finance the real economy, based on actual conditions, and are not 
involved in the financing of money.  We may lose customers, but we 
are not losing money," said Khan.  He pointed out that because some 
of Dakar's large internationally-affiliated banks may be tightening 
credit, the BIS hopes to attract new clients.  Some projects that 
are turned down by conventional banks for lack of collateral are 
being financed by BIS on a profit-sharing basis.  At the same time, 
however, a contact at the IDB suggested recently that while the BIS 
is performing well, it is likely "fudging" the sharia's no-interest 
policy. 
 
STRICT INTERNAL CONTROLS, COOPERATION WITH FIU 
--------------------------------------------- -- 
¶11.  (SBU) When asked about monitoring for financial crimes, Khan 
said his bank was rigorous, claiming that Islamic banks are 
"required" to be good citizens, and follow the laws of the country. 
In addition, Khan said he knows his bank is watched closely by 
Senegalese authorities and would face a very difficult public 
relations problem if allegations were made that the bank was aiding 
money laundering or terrorism activities.  He said the bank works 
closely with Senegal's regulators and follows strict internal 
controls.  According to Khan, the BIS has a strong relationship with 
Senegal's Financial Intelligence Unit, the CENTIF, which frequently 
provides training to the BIS's employees.  Following BCEAO and 
Senegalese law, Khan claimed that the BIS reports all suspicious 
transactions as well as all transactions that involve at least CFA 5 
million (USD 10,000) to the CENTIF.  "Efficiency, transparency, and 
credibility are part of the Islam's principles, and we follow these 
very closely.  We must abide by strict ethics in the face of money 
laundering and terrorism financing threats," said Khan. 
 
WHAT'S STOPPING THE DEAL WITH MONEYGRAM? 
---------------------------------------- 
¶12.  (SBU) At BIS branches there are prominent signs for the 
U.S.-based money transfer company MoneyGram.  However, despite seven 
years of negotiations, BIS has not been able to offer the service, 
much to Khan's chagrin.  Initially, the BIS had to work past 
MoneyGram's demand that it be the sole provider of money transfer 
services, eventually requiring a ruling in 2008 against such a 
monopoly by the Ministry of Finance's Department of Money and 
Credit.  BIS then informed MoneyGram's Paris regional office that it 
wanted to resume negotiations, but was told that there was "a 
problem from the U.S."  Khan claims to not have further information 
on what is stopping the agreement, but he speculates that it is 
based on the involvement of the Bin Laden family in DMI.  Khan is 
trying to demonstrate that DMI is no longer a shareholder in the 
BIS, but hasn't yet received any encouragement from MoneyGram.  Khan 
noted that before coming to the BIS, he spent 14 years with DMI in 
Geneva and in a number of African countries. 
 
COMMENT 
------- 
¶13.  (SBU) Though it is still a small bank compared to the 
international banks that dominate Senegal's commercial banking 
sector, the BIS is larger and more vibrant than expected, given its 
low profile.  Even if one does not subscribe to Islam's injunctions 
against charging interest, the BIS is developing products that are 
attracting customers who also utilize traditional commercial banks. 
As reported in reftel, the big banks are competing fiercely on 
interest rates, but they may also be facing stiffer competition from 
BIS's planned expansion. 
 
BERNICAT