Pandemic Offers Africa A Chance To Boost Sovereign Sukuk Sales

The financing required to rebuild economies in African nations following the coronavirus pandemic allows the continent to boost its share of Islamic financing.

The global Islamic-finance industry is forecast to expand about 25% this year after assets declined 23.5% in 2020, said Faizal Bhana, the director for the Middle East, Africa, and India at Jersey Finance, citing a study by the not-for-profit organization, which promotes the Channel island as a financial center.

African nations will struggle to raise financing as they emerge from the pandemic, Bhana said in an interview. “Sukuk will become another way for governments to go out to international markets, and raise it there.”

South Africa’s Treasury plans to sell a domestic rand-denominated Sukuk in the current fiscal year which ends in February, while Nigeria is considering Shariah-compliant debt to help finance projects in 2021. Nigeria’s Debt Management Office has already issued three sovereign sukuks, and South Africa sold its maiden Islamic bond in 2014.

In Egypt, the cabinet approved a draft sovereign Sukuk law in November, while Kenya has put in place a regulatory framework to govern its Islamic finance industry ahead of a long-awaited sale of its maiden sovereign Sukuk.

Secondary Market

The convenience brought about by technology and similarities in some features of Shariah-compliant products and environmental, social, and governance principles is expected to boost uptake of Islamic finance products, Bhana said. Governments should also encourage a secondary market to create liquidity and provide access to a wider range of investors, he said.

African government should also move toward treating Islamic finance products the same as conventional finance, Bhana said.

Islamic finance is relatively undeveloped in Africa, where a report by Islamic Finance Advisory & Assurance Services estimates its share of total assets around 1%. That’s even as almost one-third of the continent’s population is Muslim. Global Sukuk issuance increased by more than half to $93.43 billion over three years through 2018, while conventional bond issuance declined during the period, according to the report.

Originally Published on www.bloomberg.com