EAST AFRICA NEW FRONTIER FOR ISLAMIC FINANCE

Nairobi, kenya—East Africa could be the new frontier for Islamic finance following the launch of the first East Africa Islamic finance summit in Nairobi. Financial experts drawn from the region noted that East Africa features a potentially strong demand for Islamic services and that its growing reach promises a number of benefits. The Islamic Finance industry has seen tremendous increase in recent years transcending its traditional geographic boundaries and its entrance into East Africa could revolutionize the financial sector.

Participants attending the first East Africa Islamic Finance summit heard that the region presents significant opportunities to deepen and broaden financial intermediation. The experts said Islamic finance principles of risk sharing and asset-based financing can help promote better risk management by financial institutions and customers. The summit which attracted participants and speakers from the region’s key institutions, financial regulators from Mauritius and Malaysia and experts in Islamic Finance charted the way forward for Islamic finance development in the region.

The financial experts also explored how the region’s political and economic prospects may impact on Islamic finance development, trade and investments. While, Islamic finance institutions can increase the financial inclusion of underserved populations and improve access to finance for small and medium-sized enterprises, challenges in regulations, supervision and conduct of monetary policy have hindered fast penetration into the East African market. Addressing East Africa Islamic finance summit last Wednesday, Kenya’s attorney general, Dr. Githu Muigai said the country is in the process of reviewing all laws and regulations governing its nascent Islamic finance industry.

The regulations, Dr.Muigai said would aid the issuance of a debut Islamic law-compliant bond known as a sukuk which are well suited for infrastructure financing, thereby supporting growth and economic development. “We want to be able to facilitate the issuance of the bond, the process will be completed in a maximum of nine months,” said Dr Muigai. These regulatory and legal issues, Dr Muigai said are particularly important because of the increasing complexity of transactions as they seek to circumvent the prohibition against interest. The overall supervisory mechanisms for conventional finance and Islamic finance call for protection of investment accounts. During the summit, a paper presented by Kenya Bankers Association on Islamic banking and economic infrastructure demonstrated Kenya’s potential and efforts towards promoting Islamic Finance development.

(Pakistan Observer / 04 March 2016)

---
Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Islamic finances face massive demand boom in Africa

Africa is expected to see a massive population boom, many of whom will grow up Islamic. As such, demand for Islamic products and services on the continent are expected to rise in the coming years. Financing projects through Islamic financial instruments has massive potential within the African region. One such instrument is sukuk, which is a form of bond between the issuer and issuee, whereby risks are shared, while no interest is charged on the issued amount. This is beneficial to projects that require long term financing.

The ‘Islamic economy’ refers to a wide range of commercial activities and geographies that span the world. Islamic derived Sharia-compliant bonds, halal food, travel and fashion all make up components of the wider global market that spans from Niger to the financial centres of Kuala Lumpur, which was valued at $3.6 trillion in 2013. The Islamic finance side of the equation was in 2014 valued at $1.8 trillion by BearingPoint, and is project to grow to $3 trillion by 2018.

Recent research by the Economist Intelligence Unit (EIU), a consultancy that provides business analysis for decision making, concerns itself with the value of Islamic financial propositions for both the Islamic and non-Islamic players in the Sub-Sahara African region. The EIU research report, titled ‘Mapping Africa’s Islamic economy’, was commissioned by the Dubai Chamber and used desk research and interviews with experts as its basis.

(Consultansy.UK / 04 January 2015)

---
Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Islamic finance in Africa in its infancy but underway

Islamic finance has historically been dominant in Malaysia and the Gulf Cooperation Council (GCC). However, over the last year, Islamic finance has expanded its footprint throughout the Middle East, Indonesia, the United Kingdom, Luxembourg and Hong Kong. In recent months, several countries in North Africa and some Sub-Saharan African countries are already planning Sukuk debuts, including Cote d’Ivoire, Tunisia, Egypt, Nigeria and Kenya. This follows first-time issues by Senegal and South Africa. Islamic finance activities include Islamic banking, Sukuk issuance, Takaful (insurance) and microfinance. Despite this growth, Africa still has milestones to reach before it can establish itself as a major player in Islamic Finance. Why? Significant challenges revolve around the lack of a concrete regulatory framework.

African countries are working to develop their legislative and regulatory frameworks to encourage the growth of Islamic institutions and activities to accommodate Islamic finance further. Earlier this year, the G20 group of nations' decision to examine the use of Sukuk to finance infrastructure investment could, in time, bolster the size of the Sukuk market, including Africa.

Significant challenges lie ahead, notably, in establishing a legal structure and legislation that are acceptable to governments, investors and the Sukuk's Shari’ah boards. In Africa, there are no comprehensive Islamic banking laws, save for finite initiatives in a small number of countries.

These challenges will likely lead to a longer time frame of Islamic finance implementation and higher costs as opposed to more conventional forms of funding, at least until a standardised framework is established. However, several important trends will provide the necessary impetus for the development of Islamic finance in Africa. This includes growing government support for Islamic finance, increasing acceptance of Sukuk and Islamic finance more broadly and large investment and financing requirements in Africa.

Other bodies are also taking steps that could help, namely the Islamic Development Bank (IDB) and the Islamic Corporation for the Development of the Private Sector (ICD) that provide technical assistance and credit guarantees to member countries that want to fund infrastructure projects. In addition, the International Monetary Fund has created a working group to build and develop expertise in Sukuk.

Furthermore, Islamic finance could enable African sovereigns to broaden their investor base, providing some diversification away from traditional Eurobond investors and local market participants. As African governments tap the Islamic finance market, it is anticipated that other issuers such as state-owned companies and African banks could, in time, benefit from this additional source of funding.

Regional Developments

In Senegal, the Republic has successfully launched a XOF 100 billion Sukuk (approximately $170 million. Source: Zawya). This Sukuk represents a new era in the use of Islamic financing instruments in public policies. Dakar is aiming to position itself as the continent’s hub for Islamic finance. Various activities are being held including training and seminars for senior executives in the finance, investment and pilot projects in the Islamic finance industry.

Over the last few years, South Africa has introduced Islamic compliant financial structures. After the issuance of the inaugural South African sovereign Sukuk during 2014, the country’s National Treasury instituted further amendments to the National Taxation Act that saw them widen the definition of Sukuk. Moreover, the Amendment Act of 2010 recognised arrangements such as diminishing Musharakah, Murabahah and Mudarabah as credible alternatives to their conventional financing agreements, which enable banks to offer Shari’ah compliant products.

West Africa’s Cote d’Ivoire has set in motion its plans to conduct a roadshow for the first tranche of its debut Sukuk program in the fourth quarter of this year. Bruno Kone, Minister of Post, Information and Communication Technologies of Cote d’Ivoire since June 2011, reported that the government intends to issue Sukuk before the end of the year. In April 2015, the Republic mandated the ICD as lead manager for its inaugural Sukuk program worth XOF 300 billion (approximately $510 million), which will be issued over the 2015-20 period in two equal (Source: Reuters). In East Africa, the government of Uganda has approved the Financial Institutions (Amendment) Bill 2015, paving the way for Islamic banking and finance in the country. The country is said to be seeing interest from both foreign and local financial institutions to offer Shari’ah compliant services to the nation.

The Kenyan government has an ongoing partnership with the Qatari government to try and develop capacity and also develop appropriate legal and regulatory framework to make it possible for the rollout of a Sukuk for the Kenyan Government, which is expected to be in the near future.

Conclusion

Islamic finance is very much in its infancy in Africa. While the potential is important due in part to demographic factors and the need to broaden the source of funds required to support Africa’s large infrastructure deficit, Islamic finance is constrained by the absence of a suitable legal and regulatory framework in many countries. However, important Initiatives are underway to generate momentum for Islamic financial products.

(C P I Financial / 30 December 2015)

---
Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Islamic finance prospects in Africa highly promising

JEDDAH —  A newly-released report “Islamic Finance in Africa: A Promising Future” by the Islamic Corporation for the Development of the Private Sector (ICD) takes an in-depth look at the tremendous growth opportunities for Islamic finance to flourish in the region. The new report was released during the Africa Islamic Finance Forum 2015 in Abidjan.

The report is being published as the global banking community comes together to define a transformative new landscape to integrate Islamic finance into the mainstream. 

Once of interest only to a niche market of Muslim investors, Islamic finance is now venturing beyond its traditional sphere, and is slowly gaining widespread acceptance in Africa.

The birthplace of a quarter of the global Muslim population, the report highlights that Africa features a potentially strong demand for Islamic financial services and products. 

While still comparatively under-developed, Islamic finance is expanding in many parts of the region, and is now present across most of North Africa and in many countries of East and West Africa, particularly those with sizeable Muslim communities. 

One of the recommendations of the report is that Islamic finance can act as the catalyst in mobilizing funding into Africa, thereby resulting in economic growth and sustainable development. 

It is estimated that the region needed $93.0 billion per year to finance large-scale infrastructure and manufacturing projects, while external funding is also needed to offset ballooning fiscal deficits. 

Meanwhile, 2 billion adults remain unbanked globally, and currently, sub-Saharan Africa alone accounts for as much as 17.0% of the world’s unbanked adults. 

In addition, there is a significant funding potential opportunity for Islamic banks in view of the increasing emergence of small-to-medium enterprises (SMEs) across Africa. 

In light of relatively low-income levels, a large informal sector and the prevalence of small businesses in Africa, Islamic microfinance is also a growth area worth looking into.

The report also highlights notable progress in the sukuk sector, where recent developments have seen governments focusing more on creating a more enabling environment for sukuk issuances. 

Some countries which have issued sukuk include Gambia, Sudan, Senegal and South Africa, while Ivory Coast is lining up to issue its debut sukuk at the end of the year. 

Moving forward, several countries such as Tunisia, Egypt and Morocco have expressed keen interest in tapping the sukuk market for infrastructure financing and have finalized or are in the midst of finalizing their legal frameworks to promote sukuk issuances. 

Although the Islamic financial services industry in Africa is currently dominated by the banking and sukuk segments, growth potential remains in the asset management and takaful spheres. 

In its key recommendations, the report underlines that to capture the tremendous potential, the regional industry must overcome various challenges which are broadly similar with challenges faced in other parts of the world. 

These include challenges on the regulatory front such as regulatory inconsistency, the shortage of qualified human capital, the lack of awareness and financial literacy by many end-users and consumers, and a conducive business landscape which will support the growth of Islamic finance. 

(Saudi Gazette / 20 September 2015)

---
Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Abu Dhabi Islamic Bank Exploring Expansion Into SEA Asia, Africa

Abu Dhabi Islamic Bank PJSC, the United Arab Emirates’ second-biggest shariah-compliant lender, is considering entering markets in South East Asia and Africa to tap demand in countries with a large Muslim population.

The bank has “looked closely” at Indonesia and Malaysia as well as Algeria, Morocco and Jordan, Chief Executive Officer Tirad Mahmoud, told reporters late on Sunday. “We are actively visiting locations where we may be planting a flag” and may consider an acquisition next year as part of the plan, he said.

Banks in the U.A.E. are seeking to expand to diversify revenue and boost growth, which is restricted by the small size of their home market. ADIB, as the bank controlled by Abu Dhabi’s ruling family is known, is present in countries including Saudi Arabia, Qatar, Iraq, Egypt, Sudan and the U.K.

ADIB in 2014 acquired the retail banking business of Barclays Plc in the U.A.E. for 650 million dirhams ($177 million). The bank was also among lenders that bid to buy the retail banking assets of Citigroup Inc. in Egypt this year, losing out to Commercial International Bank Egypt SAE last month.

“We will be looking to do deals in 2016,” Mahmoud said. “If it’s a retail business, it’s going to be acquisitions, if it’s going to be a corporate business it will be greenfield.”

ADIB expects lending to grow by four percent to six percent this year, slower than expected industry loan growth in the “high single digit,” Mahmoud said. A slowdown in property transactions, competition and ample cash at banks is hurting growth, he said.

ADIB would like its return-on-equity to be at the higher end of 15 percent to 18 percent, the range for most U.A.E. banks, Mahmoud said. The bank has no plans to sell Islamic bonds or sukuk in the next three months and will evaluate its capital position every quarter depending on growth, he said.

(Bloomberg Business / 06 July 2015)

---
Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

More African nations ‘set to embrace Islamic finance

 the ICD, which helped arrange Senegal's debut 100 billion CFA franc ($162 million) Islamic bond last June, is “actively exploring” opportunities for Nigeria and Ivory Coast.

Earlier this month the ICD, which is the private sector arm of the Jeddah-based Islamic Development Bank Group, signed an agreement with the African Export-Import Bank (Afreximbank) to cooperate in the development of the private sector in ICD member countries in Africa.

Al Aboodi said then that Africa and the Islamic finance industry “are key strategic directions for ICD and we hope, via this partnership, we will increase our presence in the continent”.

Under the terms of the agreement with Afeximbank, the ICD said both institutions would “collaborate in joint operations, expand financial products and exchange information on modalities for enhanced and efficient interventions for private sector development in ICD affected countries”.

According to the agreement, ICD and Afreximbank will “share information on projects and business opportunities in Africa and on participation in the arrangement of syndications or investment in funds”. ICD said the institutions will also cooperate in structuring sukuk/debt capital market transaction opportunities, “co-invest in Islamic leasing companies and support local financial institutions in Africa through the raising of capital via lines of finances”.

The ICD said: “The agreement also covers exploration of opportunities for cooperation in financing projects in the construction, energy, manufacturing and leasing sectors in African countries.”

The ICD said last December that it planned to tap Islamic capital markets to raise as much as $1.2 billion in long-term funds during its current financial year and “will also explore a capital increase as it expands its economic development activities”, with a proposal to be presented to shareholders in June 2015.

A study by the Dubai Chamber of Commerce and Industry published last yearsaid Gulf businesses had invested at least $30bn in infrastructure projects in Africa over the past decade and were set to step up investment across the continent.

The survey showed that investment over the past decade amounted to up to 10% of total inflows from the Gulf, of which about $15bn was in loans and grants from Gulf development agencies and around 15bn in direct investments. The study said efforts by African regulators effort to “deepen Islamic financial systems” created an opportunity to encourage further Gulf investment in Africa’s infrastructure.

(Out-Law.Com / 24 March 2015)

---
Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Could Islamic banking help solve Africa’s finance problems?

A recent study conducted by the International Monetary Fund (IMF) has explored the possibility of using Islamic finance for increased financial inclusion; whilst the conclusion of the report was mixed, the potential impact of adopting sharia financial practices could be significant.

Their recently published paper entitled ‘Can Islamic banking increase financial inclusion?’ noted: “some evidence that Islamic banking presence and activity were associated with greater inclusion with regard to bank credit by households and by firms as a means to finance investment.”

The study eventually concluded that there was: “weak and tentative evidence of Islamic banking’s positive impact on some types of inclusion.”

Sharia compliant finance, in essence, is comprised of five ‘pillars’ which include profit and loss-sharing, risk avoidance, a ban on financing immoral activities, as well as the more well-known ban on interest payments.  

Governments in Kenya and South Africa have both recently issued a sukuk, with South Africa notable for attempting to raise $500 million from its maiden bond issuing and for Moody’s Baa1 rating (the same as the rand.)

The IMF paper notes that a holistic reform of how finance is managed in Africa would be required in order to increase financial inclusion, regardless of sharia banking coverage.  

The researchers said: “improving financial infrastructure, introducing more competition in the banking system, improving the quality of credit information, and enhancing the efficiency of the legal system” would be instrumental in improving financial inclusion across the continent.

(African Business Review / 06 March 2015)

---
Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Next stop for Islamic finance… Africa?

The U.K. and Hong Kong opened their doors to Islamic finance with high-profile "sukuk" debuts in 2014, but in the coming year, African countries might create waves in the $100 billion-a-year debt market.

Sukuk issuance is a form of financing used by both Islamic governments and companies that is compliant with Islamic sharia law – which sees the generation of income from interest as usury. Sukuks are commonly likened to conventional bonds, but differ in that investors receive a share of an underlying asset, along with the commensurate cash flows and risk, rather than ownership of just a debt.

Credit rating agency Standard & Poor's sees total sukuk issuance across the world for 2015 at $100-$115 billion. For comparison, the global debt market stands at around $100 trillion in amounts outstanding.

Several countries in North and sub-Saharan African are already planning sukuk debuts for this year, including Tunisia, Egypt, Nigeria and Kenya. This follows first-time issues by South Africa and Senegal—as well as the U.K., Luxembourg and Hong Kong—in 2014.

"The Senegal issuance could open the market for Africa," Mohamed Damak, global head of Islamic finance at Standard & Poor's said on Wednesday at a news conference.

In Damak's opinion, sukuks provide a natural answer to African governments' need to remedy a lack of infrastructure in their countries, given that this type of issuance requires an underlying asset that could be a finance project.

(C.N.B.C / 04 Febuary 2015)

---
Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Africa: 'Africa Lagging Behind in Islamic Banking'

Experts in the field of Islamic banking are to converge on Ilorin, Kwara State from January 6th to 10th for a workshop to brainstorm on the development of Islamic Banking in Africa.

The workshop is being organized by the Islamic Research and Training Institute (IRTI), a research unit of the Islamic Development Bank Group in collaboration with University of Ilorin and Al-Hikmah University.

Addressing a press conference on the workshop, Chairman of the Local Organizing Committee (LOC), Dr. Abdulkadir Abikan explained that the workshop would bring together experts in the field from various countries in the world.

He decried the underdevelopment of the Islamic financial system in Africa despite its strategic importance to the growth of the continent.

"Africa is a continent that needs this financial system more because of the way some other continents have taken advantage of this to take care of their infrastructural deficits and a lot of other developments that could be achieved from this industry", Abikan said.

He emphasized that Africa has an alternative to take advantage of the system or remain backward as a continent, even as he lamented that in the whole of West Africa, there were only seven Islamic banking institutions.

Abikan, who is the acting Dean, Faculty of Law, Al-Hikmah University, attributed the underdevelopment of Islamic banking in Africa to the low level of development in the continent.

He noted that many people, especially in Nigeria, introduced religious sentiment into the banking model, noting that many countries with insignificant percentage of Muslims have embraced Islamic banking.

The scholar recalled that the Tax Law of United Kingdom was amended in 2004 by the former Prime Minister Gordon Brown in order to accommodate Islamic banking, saying, "The first Islamic Bank which is known as the Islamic Bank of Britain was launched in 2004 in UK.

"The best way for any reasonable government is to have Islamic banking. If we say because of religious volatility, we are not going to have Islamic banking, then we would be going backward".

In a related development, a statement from IDB explained that experts in Islamic banking, regulation, and financial economics are expected to be at the workshop "to take stock of current academic research, policies, practice and development of Islamic banking in Africa.

"The workshop is also to explore current issues in Islamic banking and financial products, with a focus on the experiences of particular African countries in terms of regulation, supervision, systemic risk measures, stress testing, counterparty risk, opportunities and challenges".

Also speaking, a member of the LOC, Dr. Lateef Oladimeji disclosed that 25 papers had been submitted so far with Malaysia dominating the list of entries.

(All Africa / 04 Janury 2015)

---
Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Islamic finance gets interest from African states

AFRICAN markets are gradually opening to Islamic finance, buoyed by governments’ debut sales of sovereign sukuk (Islamic bonds) and legislative efforts to make the sector more attractive for companies across the region.

Despite the strong growth of Islamic finance in its core markets of the Middle East and south-east Asia, the industry has lagged behind in Africa, which is home to one in four of the world’s Muslims. But this year a string of transactions is helping to broaden the sector.

Governments across the continent are using sukuk as a way to attract cash-rich Islamic investors, with South Africa making a $500 million (R5.6 billion) issue last month.

The Tunisian government could soon follow with a dollar-denominated deal that it hopes to place by year-end; Kenya is considering a sukuk issue.

Nigeria’s Osun State made a small local currency sukuk issue last year and Gambia has been issuing short-term Islamic paper in its own currency for years, but the region’s booming dollar-denominated bond market could hold the greatest promise.

The eurobond market in sub-Saharan Africa saw a record $14bn in issuance last year and the figure was $10bn so far this year, said Megan McDonald, the global head of debt primary markets at Standard Bank.

Eventually, 15 percent to 20 percent of such issues could be sukuk, as the market would develop over two to three years, McDonald said.

McDonald added: “We do expect to see others, firstly government-linked institutions in South Africa such as Transnet, Eskom and Sanral, which the Treasury is hoping can tap the market.”

South Africa attracted $2.2bn in orders for its sukuk and had not ruled out tapping the market again. Interest in making issues was also coming from other state and national governments, McDonald said.

“The Treasury is open to coming back to the market.”

Islamic finance follows religious principles including a ban on interest and gambling. To obey these rules, contracts often attract double or triple tax as they require multiple transfers of underlying assets. Countries are now studying tax treatment for sukuk.

(Business Report / 17 October 2014)

---
Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Lawmakers, sukuk debutantes open Africa to Islamic finance

African markets are gradually opening to Islamic finance, buoyed by governments' debut sales of sovereign sukuk (Islamic bonds) and legislative efforts to make the sector more attractive for companies across the region.

Despite the strong growth of Islamic finance in its core markets, the Middle East and southeast Asia, the industry has lagged in Africa, which is home to one in four of the world's Muslims. This year, however, a string of transactions is helping to broaden the sector.

Governments across the continent are using sukuk as a way to attract cash-rich Islamic investors, with South Africa making a $500 million issue in September and Senegal raising 100 billion CFA francs ($208 million) in June.

The Tunisian government could soon follow with a dollar-denominated deal that it hopes to place by year-end; Kenya is considering a sukuk issue.

Nigeria's Osun State made a small local-currency sukuk issue last year and Gambia has been issuing short-term Islamic paper in its own currency for years, but the region's booming dollar-denominated bond market could hold the greatest promise.

The eurobond market in sub-Saharan Africa saw a record $14 billion in issuance last year and the figure is $10 billion so far this year, said Megan McDonald, global head of debt primary markets at South Africa's Standard Bank.

Eventually, 15 percent to 20 percent of such issues could be sukuk, as the market will develop over the next two to three years, said McDonald, whose bank was joint lead manager of South Africa's debut sukuk issue.

"We do expect to see others, firstly government-linked institutions in South Africa such as Transnet, Eskom and SANRAL, which the Treasury is hoping can tap the market."

South Africa attracted $2.2 billion in orders for its sukuk and has not ruled out tapping the market again, and interest in making issues is also coming from other state and national governments, McDonald said.

"The Treasury is open to coming back to the market. The sukuk programme is set up in such a way they can do that."

LEGISLATION

Islamic finance follows religious principles including a ban on interest and gambling; to obey these rules, contracts often attract double or even triple tax duties as they require multiple transfers of underlying assets.

South Africa spent over two years preparing its sukuk issue, mainly to secure legislative requirements for the deal, Lawmakers are now studying tax treatment to facilitate corporate issuance, efforts being mirrored elsewhere on the continent.

Countries studying tax treatment for sukuk include Morocco, Egypt, Tunisia, Nigeria, Senegal and South Africa, said Qudeer Latif, Dubai-based partner and global head of Islamic finance at law firm Clifford Chance.

"Certain jurisdictions have either passed or are in the process of passing new laws. Morocco is a good example of this."

Such legislation is prompting new entrants into Islamic finance, including two of Morocco's biggest banks, BMCE and BCP, which plan to launch Islamic subsidiaries.

At present, there are only 38 Islamic finance institutions on the entire continent, an August working paper from the International Monetary Fund showed.

Multilateral lenders are taking note, such as the Jeddah-based Islamic Development Bank (IDB) which is helping finance infrastructure projects in the region. This month, the IDB extended a small sharia-compliant tranche as part of a much larger financing package for a $2.6 billion power project in Morocco, the first cross-border financing of this type in the country.

The tranche was strategically important for the IDB as it showed Islamic finance can be used as a funding source for other African infrastructure deals, said Latif, whose firm advised on the transaction.

The Islamic tranche used an innovative structure which combined an istisna arrangement with a wakala structure, Clifford Chance said. Under istisna, a price is paid for goods that are subsequently manufactured and delivered on a stipulated date; the format is seen as suited for infrastructure and project financing. Wakala is a common sukuk structure in which an agent manages the assets underlying the issue.

The private sector arm of the IDB is also increasing its activities in Africa, helping to set up new sharia-compliant banks, leasing companies and insurance firms. 

(Reuters / 14 October 2014)

---
Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Islamic Finance Poised To Develop In North Africa

PARIS, Feb 27: After tremendous global success over the past decade, with total assets estimated at about $1.4 trillion, Islamic finance could develop in North Africa, says Standard & Poor’s Ratings Services today in a report titled “Islamic Finance Could Make Inroads Into North Africa.”

Large current account deficits and declining conventional financing sources have prompted governments from Arab spring countries to look at opportunities offered by Islamic finance.
“Sharia-compliant banking previously presented an attractiveness that was at best exotic for regulators and banks active in these markets. Now, the perception is changing and public awareness is increasing,” said Standard & Poor’s credit analyst Mohamed Damak.

Policies

We have observed this development in the North African countries where we rate banks—Egypt, Tunisia, and Morocco. These sovereigns have recently taken steps to implement policies to support the development of Islamic finance: Tunisia plans to issue sukuk to attract new class of investors; Egypt implemented new regulatory frameworks for sukuk issuance; and Morocco is laying the legal foundation for Islamic banks.

Nevertheless, we believe that Islamic finance in this region has yet to demonstrate its economic added value beyond enabling products abiding with Islamic law. Such added value could materialize through creating access to a new class of investors or by offering Sharia-compliant products at costs comparable with their conventional counterparts. The stiff price competition in some of the North African markets indicates that customers in these regions are relatively more sensitive to the costs associated with banking products.

“Islamic finance in North Africa remains underdeveloped but regulatory changes are laying the groundwork for its growth,” said Damak. “However, we believe that success will depend on their ability to offer products at a cost competitive with conventional banking activities.”
We also believe that Islamic finance can be a good fit for infrastructure and project finance, as banks lack long-term funding capability required by these projects. Several projects in renewable energy, transport infrastructure, and communication are ongoing or expected to be launched in the future in North African countries. Using sukuk to finance some of these projects could help diversify investor bases and tap additional pools of resources.

(Arab Times / 01 March 2014)

---
Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Islamic banking headway in North African banks still slow: Standard and Poor’s

Local banks in the North Africa region are still “slowly familiarizing” themselves with Islamic finance and sukuk markets as a creditable financing alternative, according to an report by international ratings agency Standard and Poor’s (S&P) published 18 February.

Following uprisings in Egypt and Tunisia, new governments are more inclined to cooperate with Gulf countries and have increased their interest in the development of Islamic finance “compared with previous regimes that turned more toward western powers and conventional banking,” S&P wrote.

With four Islamic banks, five takaful companies and twelve Islamic funds, Egypt’s Islamic banking assets total $11.6bn.

“We believe that Islamic finance in this region has yet to demonstrate its economic added value beyond enabling products abiding with Islamic law,” the report’s authors concluded. “Such added value could materialise through creating access to a new class of investors or customers or by offering Sharia-compliant [Islamic law] products at costs comparable with their conventional counterparts.”

Islamic banking remains unpopular in Egypt, according to a recent Gallup survey. Only 3% of adults use the service and only 49% have even heard of it.

The survey also predicted an increase in demand for both conventional and Islamic banking in the Middle East and North Africa, the region with the “largest share of unbanked adults worldwide”.

Takaful companies are cooperative insurance firms that abide by Islamic law. Members contribute a certain amount of money in order to guarantee each other against damages and losses.

(Daily News Egypt / 23 Feb 2014)

---
Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com