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Halaal loans may give migrants a 'secret' edge

| Economic factors

There has been a clear attempt in some quarters to trivialise and justify the recent spate of xenophobic attacks against immigrant shop owners on the pretext that they were engaging in business practices that prejudiced the competitiveness of indigenous small-scale business operators.

That thinking is inexcusable and dangerous — especially as it seems to be premised on an underlying ignorance as to why the small-scale immigrant shop owners appear to fare better in their ventures.

Widespread distrust, as amply demonstrated by Small Business Minister Lindiwe Zulu, is founded on the assumption that the success of foreigners rests on business secrets that their local competitors are not privy to.

These immigrant business operators, she says, are obliged to show their gratitude to the hosts by disclosing such "secrets". By withholding such information, Zulu argues, the foreigners are stifling the competitiveness of their indigenous business counterparts.

Besides turning the victims into villains, that statement is capable of inflaming the marginalisation of certain groups in society.

In the absence of what should have been a robust denunciation of such acts of violence, Zulu's response gives credence to the axiom that people loathe that which they don't understand.

Perhaps there is a need to give some serious thought to the possible "secrets" behind the alleged success of the immigrant small-scale business players.

In her quest to unravel these so-called secrets, Zulu might want to consider the dynamics that tend to make migrants seem hard-working and innovative. That endeavour is likely to expose a saga of trials and tribulations, revealing how these migrants — many of whom came to this country bare-footed and bare-handed, armed only with this magical commercial nous — strove to get where they are.

Understanding this would require delving into the phenomena that motivate the risk-taking, self-starting attitude that most migrants — especially those from countries with few or no business opportunities - exhibit the moment they are exposed to a comparatively supportive environment.

There is also a realistic possibility that these so-called secrets could well be a mere manifestation of the triumph of one source of capital over another.

Modern business is sustained by diverse types of short-term borrowing. But companies that opt for conventional funding often find themselves in considerable trouble as they battle to repay fixed-interest loans.

Here, there is a sharp distinction between Islamic financing and conventional bank funding.

An interesting dynamic in this case is that most of the targeted shop owners in the recent attacks - Somalis, Pakistanis and Ethiopians — come from an Islamic tradition. It is logical to assume that these victims of the violence had strong incentives to adhere to "halaal banking".

The unique features of Islamic finance, especially the conveniences deriving from a sharia-complaint financial system over conventional banking, have proven to be quite popular. Absa and FNB are ploughing plenty of resources into establishing such banking structures.

Equally, dedicated banks such as Al Baraka have championed Islamic products that offer, for instance, returns that are way higher than those offered by conventional banks.

What makes Islamic banking different is that it includes unique features of a benevolent, moral and socialised approach to financing. For example, Islamic financing forbids the payment of interest (riba) and favours the obligatory sharing of wealth with the poor (zakat), which means there is a better likelihood of members of an Islamic community getting support for their business ventures. These are benefits not readily available to transactors of conventional sources of funding.

Obviously the problems we saw recently are only part of the bigger story.

It's a story that requires deeper reflection to establish a proper perspective that hopefully demystifies how foreigners succeed in this country. Until then, widespread suspicion and fear of the unknown threaten to emerge again at the behest of elements with their own agenda.

Kawadza is a lecturer in banking and finance law at the law school of the University of the Witwatersrand

• This article was first published in Sunday Times: Business Times

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