Nigeria and some African countries are for the first time embracing large-scale Islamic finance as countries seek to tap cash-rich Middle Eastern investors to finance their large infrastructure programmes, reports FT.
The market for sukuk, or Islamic bonds, received a boost this month after Nigeria became the first major economy in sub-Saharan Africa to use the $100 billion a year Islamic market, followed days later by Senegal.
Africa is home to roughly 400 million Muslims – about a quarter of the world’s total – but until now only Gambia and Sudan have issued any sukuk, and they were for tiny sums on a short-term basis.
Analysts said the Nigerian sharia-compliant bond issued by Osun State, while relatively small at $62 million, signalled the start of a trend.
“Increasingly, it seems that sovereign sukuk issues from Africa might now be on the radar,” said Christian Esters, at credit rating agency Standard & Poor’s.
Senegal said it had plans for a $200 million sukuk in 2014 with the support of the Jeddah-based Islamic Development Bank. Amadou Ba, finance minister, said the offering was the “beginning of an ambitious programme which could lead to the financing of innovative infrastructure and energy projects through sukuk”.
The use of Islamic finance on the continent could grow further as several north and sub-Saharan African countries – including Morocco, Tunisia, South Africa and Kenya – are laying the legal groundwork to be able to issue sukuk. The central banks of Nigeria and Mauritius are also shareholders in the Malaysia-based International Islamic Liquidity Management Corp, which has started to issue sukuk to help Islamic banks manage their finances.
Bankers and lawyers caution that the industry is in its infancy and it will take several years before Islamic finance takes off across the continent. Clement Fondufe, partner at law firm Latham & Watkins, said that compared with Asia and the Middle East, “Islamic finance is at the early stages of development” in Africa.