Islamic banking in South Africa - form over substance

Kholvadia, Faatima
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The purpose of this study is to analyse the operational economics of Islamic banking transactions in South Africa and to understand how the economics of these transactions lead to the IFRS accounting. The study also aims to highlight the similarities and differences of accounting for these transactions using IFRS, across the different South African banks. The transactions analysed are deposit products of qard and mudaraba and financing products of murabaha, ijarah and diminishing musharaka. The study was conducted through interviews with representatives from each of the four South African banks which offer Islamic banking products. Interviews were semi-structured and allowed for interviewees to voice their perspectives increasing the validity of the interviews. The study found that the specific Shariah requirements of Islamic banking transactions are considered and included in the structure of the contracts by all four banks offering Islamic banking products. However, the economic reality of these transactions closely resembles conventional banking transactions. The study also found that all four banks account for Islamic banking transactions using IFRS but the accounting does not match the Shariah requirements of each transaction, creating a cognitive dissonance between the accounting and the contractual form of the transactions. This study is the first of its kind in South Africa. The study adds to the IASB Consultative Group discussion on accounting for Islamic banking transactions under IFRS. Key words: Conceptual Framework, diminishing musharaka, IFRS, ijarah, Islamic banking, mudaraba, murabaha, qard
A research report submitted In partial fulfilment of the requirements for the degree of Master of Commerce University of the Witwatersrand
Kholvadia, Faatima (2016) Islamic banking in South Africa - form over substance, University of the Witwatersrand, Johannesburg, <>