Islamic finance is growing in Africa as countries seek to tap cash-rich Middle Eastern investors to finance infrastructure projects. Several countries have issued sovereign sukuk bonds, including Nigeria, Senegal, South Africa, Gambia and Sudan. Kenya, Morocco, Tunisia and Ivory Coast are developing their Islamic finance regulations and markets. The prospects for using Islamic finance for infrastructure programs across Africa are strong, as the global sukuk market is projected to reach $900 billion by 2017.

1. ISLAMIC FINANCE IN
AFRICA: PROSPECTS AND
POSSIBILITIES
B Y : C A M I L L E P A L D I
C E O O F F A A I F
A F R I C A I S L A M I C I N V E S T M E N T F O R U M ( A I I E F )
S O F I T E L H O T E L J U M E I R A H B E A C H , M A R C H 1 5 , 2 0 1 6

2. INTRODUCTION
The business leaders of most nations of the world including IMF Chief Christine Lagarde
recognize Islamic finance as a valuable business model and form of alternative finance to
stimulate economic growth, raise funds for businesses and government projects, and
diversify assets, investments, and investor classes.

3. SEYCHELLES AND GHANA
• Africa is now embracing large-scale Islamic finance as it seeks to tap cash-rich Middle
Eastern Investors to finance large infrastructure programs.
• The Seychelles (2006) and Ghana (2007) became the first countries in the region to
issue African Euro bonds, in 2006 and 2007 respectively, but it was not until 2011-12
that others followed suit.
• Congo and Gabon also issued African Euro Bonds in 2007.

4. MOODY’S REPORT
• According to an October 2013 Moody’s report, primary issuances by Sub-Saharan
African sovereigns stood at 4.4 $Billion from four issuers (Ghana, Nigeria, Rwanda, and
South Africa).

5. NIGERIA
• In 2013, Nigeria became the first big economy in sub-Saharan Africa to use the sukuk
market when Osun State, in the South of Nigeria, issued a $71 Million Dollar Sukuk.
• The sukuk was issued on October 10, 2013 to fund infrastructure and social projects
including 27 schools.
• The Sukuk was rated “A” by Agusto and Co, a local credit agency, and listed on the
Nigerian Stock Exchange.
• Fixed return of 14.75%.
• Oversubscribed by $8.7 Million.

6. NIGERIAN SUKUK
• Sukuk al – ijarah.
• Osun State of Nigeria incorporated an SPV, Osun Sukuk Company Plc (the SPV), to which it
transferred the land for construction of the schools.
• The SPV issued sukuk in the aggregate principal amount of $71 million representing
undivided ownership interests in the land.
• The net proceeds of the issuance were used by the SPV to pay the purchase price for the
land and fund construction of the schools.
• The land was leased back to the state government against periodical rental payments and
partial redemption payments, which are passed through to the sukuk holders in proportion
to their ownership interest in the underlying asset based on the sukuk they hold.

7. NIGERIA AND MAURITIUS
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.

8. SENEGAL
• Soon after, Senegal raised $200 Million through a sukuk issuance in 2014 with the
support of the Islamic Development Bank.
• That sukuk was the first major sukuk issued by a West African nation and achieved a
profit rate of 6.25% with a four year maturity.

9. SOUTH AFRICA
• Rolling with the African Sukuk momentum, South Africa issued a $500m sukuk, which
was more than four times subscribed, with an order book of $2.2bn according to the
SA Treasury, indicating that appetite for emerging market Islamic bonds matches that
of developed world issuance.
• The bond, which matures in June 2020, is a Sukuk Al-Ijarah structure with cash flows
based on infrastructure assets, although the country has not made public what these
assets are.

10. GAMBIA AND SUDAN
• Even Gambia and Sudan have issued sukuk, however, for small amounts and on a
short-term basis.
• GAMBIA:
– Type: Sukuk al-salaam Term: 3 months Amount: 40 million (2011)

11. SUDAN
• Sudan issued a 160 million GBP sukuk in 2011.
• Sudan offered another sukuk at 758 million in 2011 backed by a state electrical firm.

12. SUDAN
• Sudan issues both musharaka sukuk, which gives investors a share in a venture's
profits, and ijara sukuk - such as the Nour sukuk - which involve a transfer of tangible
assets such as real estate from one party to another.
• Sudan offers musharaka sukuk, known as "shahama", four times a year, usually yielding
around 16 to 19 percent.
• Ijara sukuk yield closer to 20 percent.
• The country offered an ijara sukuk in 2010 backed by the government stake in an oil
refinery.

13. IVORY COAST
• The Ivory Coast is to become the latest state to issue a Sovereign Sukuk as it recently
launched its debut five year 150 billion CFA issuance sukuk priced at a profit rate of
5.75%.
• The sukuk is being arranged by the Islamic Corporation for Private Sector
Development (ICD).
• The ICD signed an agreement in April 2015 for the implementation of a five-year
Sukuk programme for 300 billion CFA to be issued in two equal phases of 150 billion
CFA each.

14. IVORY COAST
• A road show was held in Saudi Arabia from 14 to 19 November 2015 and followed a
recent upward revision of the Ivory Coast’s sovereign rating by Moody’s from B1 to
Ba3.
• The launch ceremony held in Abidjan was attended by the Prime Minster and Finance
Minister as well as guests from the IMF, World Bank, African Development Bank as well
as domestic CEO’s of local banks.

15. IVORY COAST
• Sukuk are particularly suited for sub-Saharan Africa, a region that needs huge
investments in infrastructure, from power stations and railways to ports and roads.
• In addition, Morocco, Tunisia, and Kenya are laying the legal groundwork to issue
sukuk and operate Islamic banks.

16. TUNISIA
• Tunisia also has a sukuk issuance in the pipeline…

17. TUNISIA
• 1 Billion Dollar Sukuk
• 10 Years
• 5.875% Yield
• Sovereign Sukuk Printed through Central Bank of Tunisia
• Tunisia is rated Ba3 by Moody's and BB- by Fitch
• Citibank, Natixis, Standard Chartered
• Closing Date: 2016

18. MOROCCO
• Morocco agreed to a $2.4 billion package with the IDB, under which it would receive
$600 million each year from 2013 to 2016.
• It also raised $750 million in 2013 in a two-part re-opening of its $1.5 billion bond.
• The Moroccan Sukuk is backed by the Islamic Development Bank.

19. MOROCCO
• Dar Assafaa, an affiliate of the country’s largest lender AttijariWafa Bank, became the
nation’s first wholly Sharia-compliant financial institution when the central bank
approved its switch.
• The country introduced a law in January 2015 to regulate Islamic financial products
and allow local and foreign banks to set up units that comply with the religion’s ban
on interest.

20. MOROCCO
• Morocco is rated BBB- at Standard & Poor’s, the lowest investment grade, while Egypt
is B-, six levels into junk.
• Tunisia is rated Ba3 by Moody’s Investors Service, three levels below investment grade.
• Algeria and Libya aren’t rated.

21. MOROCCO
• The country’s Islamic finance bill, which came into force on January 30, also allows for
the formation of a centralised Sharia board to oversee Islamic banks.
• The Moroccan Association of Participative Financiers estimates total investment in
Sharia-compliant products in the country will reach $7 billion by 2018.
• About $1.8bn in assets are held by Islamic financial institutions worldwide, according
to S&P.

22. MOROCCO
• Islamic finance may account for as much as 10 per cent of the total banking assets
within 10 years,” said Mohamed El Kettani, the chief executive officer of AttijariWafa.

23. EGYPT
• Islamic finance was derailed in Egypt when Morsi, whose administration pledged to
expand the industry, was removed from power.
• The country is revising a new sukuk law.

24. LIBYA
In Libya, which passed a law in 2013 to ban non-Sharia compliant banking by this year,
successor governments to Qaddafi have been unable to assert full control over the
country, which now has two rival governments and parliaments.
Qaddafi had actually tried to implement the gold standard in Libya.

25. KENYA
Kenya's financial regulator has proposed a separate regulatory framework for Islamic
financial institutions as part of a broad ten-year strategy designed to boost capital
markets in east Africa's biggest economy.

26. KENYA
• Kenya is reviewing all laws and regulations governing its nascent Islamic finance
industry to aid the issuance of a debut Islamic law-compliant bond, its attorney general
said.
• The East African nation, which issued its first Eurobond in 2014, wants to expand the
range of financing available for infrastructure projects like roads and power plants.

27. KENYA
• The Treasury has said it is looking at the possibility of issuing the sukuk in the 2016/17
fiscal year, starting in July, but it has not offered details.
• Githu Muigai said that the review of that entire regulatory framework will be
completed in a maximum of nine months.
• Kenya's central bank licensed two Shariah-compliant banks in 2007.
• At least one firm has since started to offer Shariah-compliant insurance products.

28. SUKUK FOR INFRASTRUCTURE
PROGRAMS
• Amadou Sy, a fellow at the Brookings Institution and former official at the International
Monetary Fund who has studied the sector, says sukuk issuance could help Africa to
pay for multibillion-dollar infrastructure programmes.
• “You have money from the Gulf and then you have the Islamic Development Bank, and
also Malaysia and Indonesia – there is money out there,” he said.

29. ISLAMIC DEVELOPMENT BANK
• The Islamic Development Bank, for example, is lending $150m through sharia-
compliant facilities for the new Lekki port in Nigeria.
• It also supported the construction of the Kenitra power plant in Morocco with a $200m
loan.

30. PROJECTIONS
• According to Ernst and Young, the global sukuk market is projected to reach $900
Billion by 2017.
• The UK drew orders of more than £2bn from investors in the UK, Middle East, and Asia
for its sale of £200m of Shariah-compliant debt in 2014 and also in the same year,
Hong Kong raised $1bn in its debut Islamic bond issue, attracting nearly $5bn in
orders.

31. CONCLUSION
• It is the right time for Africa to engage in Islamic finance to attract funds for
infrastructure and government projects as well as raise capital for African businesses.

32. THE END