Islamic bond issuance expected to boom in Africa

Volume of Islamic bond (sukuk) issuance is expected to gain in the next few years as Africa joins other key Islamic markets such as Persian Gulf countries, Turkey, Malaysia and Indonesia, according to rating agency Moody’s.

“We expect sukuk issuance to proliferate over the coming decade as more African governments tackle the complex regulatory and legislative adjustments required to enable it,” said Peter Mushangwe, an analyst Moody’s.

The massive amounts of financing needs to fund the continent’s infrastructure deficit will be a key driver. Sukuk issuance in Africa contributes less than half a per cent of global outstanding sukuk.

After a record year of issuance in 2020 dominated by the Persian Gulf Cooperation Council countries sovereigns at $205 billion, in 2021, global sukuk issuance is expected to consolidate in the range of $190 to $200 billion according to Moody’s estimates.

In the African continent, Moody’s see West African nations to lead in sukuk issuances. Greater sukuk issuance will promote greater public awareness of Islamic finance.

Egypt, Morocco, Sudan, Senegal and Nigeria stand out as best positioned for growth in Islamic finance. They have large Muslim populations, have made, or are making, the extensive legal and regulatory changes required for Shariah-compliant finance and most have a history of sukuk issuance. Egypt has indicated that it will likely issue its debut sukuk in its 2021-22 fiscal year.

“Islamic banking has huge potential to expand in Africa, whose Muslim population was estimated at around 446 million in 2020. Egypt, Morocco, Sudan, Nigeria and Senegal will lead the growth, helped by their existing or rapidly evolving regulatory and supervisory structures that will promote Islamic banking,” said Mushangwe.

While African countries are starting to put Shariah-compliant laws and regulations in place but constraints remain. Islamic banking has made little headway in Africa despite the continent’s large Muslim population. Africa has close to a quarter of the world’s Muslims but its Shariah law-compliant banking assets currently make up only around 2 per cent of global Islamic banking assets.