IFN Correspondent Report: Central Africa by Marvin Cole

In a region such as Central Africa (CEMAC Zone) you have to know which structure levers to pull to balance nuance, with practicality, and policy versus legal to form an effective finance mechanism. The Malaysian model of the Bai Al Inah is a classic case of this.

Investors seeking yield and alignment in the region may wish to incorporate understanding of how Civil Law and Islamic Law co-reside in the region. There are some surprising upsides to this type of contract. The Malaysian version of the ‘Sales & Repurchase’ was first put into practice in 2015 and proved to fit well within the scope of legality. The Bai Al Inah is slowly gaining popularity with foreign investors and Islamic finance professionals.

To begin with, the legal system (French Civil Law) does not consistently uphold penalties and judgements at the local level when enforcing breach of contract. Those tasked with overseeing tribunals at “convocations” and even judges have been known to make arbitrary and unforeseen judgements that do not support the fair and clear interpretation of contracts, especially when primary residences are at the center of the contract. This is one of the reasons why unsecured financing is risky and why investors are turning to experienced Islamic professionals who have used the Malaysian Bai Al Inah successfully.

Because real estate law in the region is respected as a strong, versatile tool for ‘wrapping’ transactions, the Bai Al Inah becomes a powerful tool for the way it protects “the spirit” of the transaction — a sale and future repurchase. The Bai Al Inah is taken before a notary for finalization by both parties. The seller sells the property to the buyer, and the title to the asset is transferred to the buyer. There is no lien here. The seller has completely sold the property to the buyer.

In the case of a failed transaction, there is no day in court, lengthy, expensive, drawn out procedures or amendment to the contract after the fact. The buyer owns the asset/property. The Bai Al Inah is clear, effective and specific. It is much harder to “pervert” than a traditional lien. When the transaction and all conditions are satisfied, the seller repurchases the asset. Ownership has changed twice.

The most surprising upside to the Bai Al Inah is the tax impact. The restorative nature of the Bai Al Inah means effectively, the sale has been canceled. Tax on ‘zero’ revenue is not levied and is not accrued — except in some cases where revenue from fees or mark-up has been built into the contract. In a country like Cameroon which has few reciprocal tax treaties, except with France and Canada, this can be a helpful strategy for reducing the impact of dual taxation to investor portfolios.

Any public opinion or media appearance is the author’s independent personal opinion and should not be construed to represent any institution with whom the author is affiliated.

Marvin RR Cole is CEO of Ovamba Solutions.

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On July 16, 2020, Dedalus Global, Africa Fintech Summit, and Ovamba Solutions, Inc. co-hosted their first virtual event "Dissecting the Issue: Virtual Sandbox Event." Ashley Smith, Chief Brand Officer of Dedalus Global, in her introductory remarks mentioned the 'need to expand and explore Africa’s business ecosystem and the role of stakeholders’.  We were excited to have the keynote speech delivered by Prof. Olayinka David-West who leads Lagos Business School's  Program for Sustainable & Inclusive Digital Financial Services Initiatives.  She talked about the 'need to drive collaboration, partnership and innovation to create markets and address social and business challenges in African Markets’. The event was moderated by Viola Llewellyn, President of Ovamba and featured six stakeholders: Chika Ugwueze, Acting Head of the Payments System Initiatives Division from the Central Bank of Nigeria; Olubunmi Abayomi-Olukunle, Founding Partner of Balogun Harold Legal; Lexi Novitske, Managing Partner of Acuity Ventures; Dr. Anino Emuwa, Founder & Managing Director of Avandis; Frank Atat, Divisional Head of eBusiness at ProvidusBank Plc; fellow Fintech innovator, Tomilola Adejana, Chief Executive Officer of Bankly; and serial entrepreneur, Franklin Amoo, Partner of Baylis Emerging Markets.

At the center of the event was George Obed, Chief Executive Officer, Nomad Money. The Nigerian-based company was selected as the finalist from amongst a number of applicants who applied to be the 'case study' of the virtual sandbox.  The purpose of "Dissecting the Issue: Virtual Sandbox Event" was to take a deeper look into the FinTech innovation ecosystem from the perspective of all of the above mentioned stakeholders in order to highlight and resolve the real challenges faced by Nomad Money in the Nigerian market. Leland Rice, CEO of Dedalus closed out the Virtual Sandbox on a high note stating that 'there has never been a better time or forum to support the FinTech sector and the businesses in it'.

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By Viola Llewellyn

Africa’s accuracy has been a challenge when it comes to numbers and data. According to a June1st update, there have been over 140,000 confirmed cases of Covid-19 in Africa. Lesotho reports only 2 active cases, and Egypt is leading the peak with almost 25,000 cases.

The total recovery rate for the entire Continent is 61,773 and deaths reported is 4,223. Because there has not been wide-spread testing, and testing did not become available to all at the onset of the pandemic, it is hard to know what the true numbers really are. Put this against the backdrop of 1.2 billion people and the image is not as dire as reports from various media outlets claim. Businesses are not shrinking in number the way some have predicted, but survivability is impacted by the lack of digital solutions to meet the ’new normal’. Diminished liquidity and stimulus programmes are not easily available to shore up business continuity.

But despite the weak health systems, early border closures and the common-sense actions of everyday citizens has helped alleviate the worst of the pandemic. African countries as a whole are doing remarkably well considering. This resilience which was demonstrated expertly during the Ebola crisis has again contributed to keeping economies afloat and businesses ’still in business’.

As with the weakness seen in the healthcare systems of some African countries, weaknesses have revealed themselves in the banking system where full digitization has not been fully embraced to provide an effective response to Covid-19. Lending is a paper-heavy process for most African banks. There is a great reluctance to leave 'the paper’ behind and embrace efficiencies from digital solutions. Unsecured lending was already out of reach for most small businesses; this has created a space for alternative finance options. Ovamba was an early pioneer of Islamic solutions and digitized a Murabaha for SMEs back in 2017, and adapted it for Banks to license in 2019. Assisting banks with an “inventory-centric” digital solution to resolve their customers capital needs helps to reduce the impact of Non-performing loans and protects precious bank margins during this time of uncertainty.

The relevance of Islamic finance solutions for our current times should not be underestimated. In fact, the ethical nature of Islamic Finance closely aligns itself with the serious consequences of the virus and the moral imperative to protect the health of customers and staff. Islamic finance is rooted in how Risk is respected and shared. Islamic finance demands a careful approach to ensuring fairness and equity.

Other FinTech solutions are finding their ’time in the sun’ during this pandemic. Digital innovations to integrate payment solutions, mobile wallets and digital currencies with customer bank accounts could save financial institutions, but they have been slow to make the final leap across the digital divide. Ovamba has rolled out enhanced work flow and risk management with anti-fraud processes to support online transaction applications for bank staff working from home who cannot sit down with customers face to face due to the contagion.

It has been an interesting time for finance, businesses, banks and innovation. It can be agreed that Covid-19 pushed African businesses to address digital inclusiveness and disaster recovery sooner than they might have liked. I

In the months to come, we expect to see engagement from Central Banks as they endorse policies to support digital adoption and push for even more financial inclusion. For the business owners who survive Covid-19, they will be looking to thrive and digitally future-proof their businesses and revenues from the impact of future pandemics, because what is now certain in life, other than death and taxes is the likelihood of another pandemic, and there WILL be more of these types of these health-related economic disruptions in the not too distant future.

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