Focus: Middle East
Islamic Finance Goes to Africa
The Shariah-compliant financial products are widely available and used in countries such as Malaysia and the GCC region,
however, the sector has a huge potential in other emerging economies too.
By A. Rizvi, Dubai
B
oasting seven of the 10 fastest
growing economies in the world
and home to a huge, mostly unban-
ked Muslim population, Africa has
often been described as Islamic banking’s
new frontier.
Eng. Hani Salem Sonbol, Chief Executive
Officer of International Islamic Trade
Finance Corporation (ITFC), and Renoy
Kundukulam, Head of Wealth Manage-
ment at Noor Bank, concur.
Islamic finance has been rapidly
growing across the continent, with go-
vernments and investors leveraging its
potential. As per financial agency Moo-
dy’s, Sharia-compliant bonds worth $2.3
billion have been issued in Africa, and
the number of licensed Islamic financial
institutions has risen to more than 80 in
the last five years.
Still, African sukuk account for only
0.5 per cent of global sukuk issuance, and
20 TRENDS | Fall 2018
Islamic banking assets represent less than
5 per cent of the total African banking as-
sets. There is a huge potential for growth,
and Eng. Sonbol and Mr. Kunduku-
lam share their insights with TRENDS
MENA on the subject.
Changing Trends
Eng. Sonbol: Historically, Islamic
banking and finance assets have been
concentrated in Islamic majority jurisdic-
tions like the Middle East and Malaysia,
where they account for more than 80 per
cent of industry assets. However, in the
past five years, this trend has started to
shift, partly in recognition of the need to
leverage regions like Africa where Isla-
mic finance should thrive.
The continent has a Muslim popula-
tion of approximately 636 million, repre-
senting almost 53 per cent of Africans.
In addition, the Muslim population in
sub-Saharan Africa is projected to grow
by nearly 60 per cent from 242.5 million
in 2010 to 385.9 million in 2030. What
we see now are many African countries
that have already started taking steps
to support the local uptake of Islamic
financing mechanisms and indicating
their intention to participate in Islamic
finance transactions.
Expected Growth
Kundukulam: More than 50 per cent of
Africa’s 1.2 billion population is Muslim
thus it is not surprising that we have
seen a substantial growth in the number
of Islamic banks in recent years. A nu-
mber of conventional banks have set up
Islamic departments or windows across
Africa in which they offer Shariah-com-
pliant products. According to Moody’s
latest report, the share of Islamic banking
assets is currently below 5 per cent of
© Shutterstock

Fall 2018 | TRENDS 21

Focus: Middle East
Islamic finance is also addressed to those who prefer ethical and socially
responsible banking products and solutions.
the total African banking assets, but is
expected to rise to more than 10 per cent
over the next five years.
It is pertinent to mention that we be-
lieve Islamic finance is not just restricted
to those Africans who prefer to deal with
Islamic financial institutions for religious
reasons, but also those who prefer ethi-
cal and socially responsible banking pro-
ducts and solutions.
Bridging the Funding Gap
Eng. Sonbol: As economies across Afri-
ca begin to compete more and more on
a global level, Islamic finance presents a
unique and relatively novel mechanism to
help address key development issues on
22 TRENDS | Fall 2018
their growth journey. Key among these
issues is the need to increase financial
inclusion among the wider population
and to bridge the funding gap required
for infrastructural development and trade
connectivity.
Many countries have taken the lead
by introducing legal and regulatory
frameworks to promote the develop-
ment of Islamic finance products. Re-
cent changes to Kenya’s stamp duty and
VAT regulation to create a more level
playing field between Shariah-compliant
and conventional products as well as the
adoption of Islamic banks and takaful (Is-
lamic insurance) companies in Burkina
Faso, Nigeria, Tanzania, Tunisia, Uganda
© Reuters
and South Africa are examples of this.
Several traditional banks across the
continent have also started to offer Sha-
riah-compliant banking products while
some governments have either started
issuing international or domestic sukuk
or Islamic bonds. Major in-roads are the-
refore being made towards ensuring that
Africans benefit from Shariah-compliant
products and services.
Active Government Support
Kundukulam: Africa is a region gifted
with large oil, gas and mineral resources
which are essential for the growth of an
economy. That paired with the fact that
Africa is one of the most populated re-
gions with the current population excee-
ding 1.2 billion and Muslims accounting
for more than 50 per cent of it. These de-
mographics alone indicate a potentially
strong demand for Islamic financial ser-
vices and products.
Rapid wealth creation makes it easier
for Islamic banking to develop in the
region. During the last decade, the num-
ber of Ultra High Net-worth Individuals
(UHNWIs) has risen by 13 per cent in
Africa and is expected to grow further
by 33 per cent over next 10 years. In
fact, among the twenty countries whose
UHNWI population has grown the fastest
over the last ten years, 11 are in Africa.
Demand for Islamic products and ser-
vices has been rising significantly in re-
cent years. Several African countries,
including Senegal, Nigeria, Mauritius,
Gambia, have tapped into the sukuk
market; and countries like Egypt, Alge-
ria, Morocco and Sudan are planning
their debut sukuk issues over the next
few years.
Islamic banks have already started
increasing investments in key markets
across Africa, and there is also an active
support from African governments fur-
ther aiding the growth of Islamic banking
across the continent.
© Reuters

Supporting smes
Eng. Sonbol: Much of Africa’s popula-
tion is accustomed to informal financial
arrangements between friends and fa-
mily, while remaining resistant to taking
up banking with formal financial institu-
tions. This limited financial penetration
in Africa presents vast opportunities for
innovation in the sector.
Africa is already well known for
pioneering microfinance products, mobile
money and other non-banking financial
tools. It can therefore be expected that,
Islamic finance products and institutions
will become increasingly mainstream
across the continent given the gaps they
fill. While the regulatory and knowledge
gaps in Africa will take time to address,
the positive trends are already evident.
ITFC is determined to take the lead in
bridging these gaps by introducing va-
rious initiatives across African markets
towards advancing trade and improving
Islamic finance could become a key driver in mobilizing funding into Africa and
shift infrastructure financing away from traditional banks.
lives. For example, the recently launched aware of the alternatives open to them
West Africa SMEs Program, which is through Islamic financing tools.
aimed at improving and streamlining
access to trade lines of finance and en- Infrastructure Financing
hancing the capacity of SMEs by suppor- Kundukulam: A key enabler for deve-
ting them in the submission process for loping a sustainable growing economy
trade finance. is investing in its infrastructure. This
It is also worth noting ITFC’s inter- results in financing needs growing at
ventions in the agri sector, having pro- propelling rates. Islamic finance has a
vided over US$780 million financing to strong potential to become a key driver
the cotton sector in Sub-Saharan Africa in mobilizing funding into Africa and
and approved 14 financing operations in shift infrastructure financing away from
the same sector within West Africa, have traditional banks towards the sukuk
positioned ITFC as the “Cotton Bank for market. We have seen many countries,
Africa.” We are committed to doing our including UAE, Bahrain, Indonesia, Ma-
bit to ensure that African markets are laysia and others, choose sukuk as an al-

Fall 2018 | TRENDS 23

Focus: Middle East

communities, who on religious grounds

Islamic Fintech is to be considered to help create the bridge for financial may be reluctant to accept financial ser-
inclusion, by contributing to job creation among other advantages. vices provided by conventional banks.
This makes the need for Shariah-com-
ternative to conventional debt financing, Africa, because it provides stable wage- pliant financial products more pressing,
especially for large infrastructure and paying opportunities for Africans thus both together with and as an alternative to
energy projects. promoting creation of a growing middle conventional banking and insurance offe-
Sukuk has gained popularity thanks class. This leads to African economic rings.
to its direct link with real economy and growth and welfare in the long run. Here at ITFC, our various trade finance
asset-backed transactions, as in the case and trade development operations across
of infrastructure financing. Economies in Islamic Fintech Africa are geared towards ensuring a high
Africa have already begun to enter sukuk Eng. Sonbol: The European Investment level of financial inclusivity. Additionally,
market. However, the share of African Bank estimates that in 2017, as many as Islamic Fintech is to be considered to help
sukuk market still remains insignificant, 350 million Africans did not have formal create the bridge for financial inclusion,
representing only 0.5 per cent of global bank accounts. Therefore, the availability which is achieved by contributing to job
sukuk issuance, according to the Moo- of Islamic finance products could go a long creation via facilitating financing opera-
dy’s report. way towards significantly increasing ac- tions, alleviating risk factors preventing
Islamic finance also contributes signi- cess to finance for Africa’s financially un- trade, building investment confidence in
ficantly to meeting the financing requi- derserved population. It is also important the least developed markets and enhancing
rements for SMEs, which is critical for to consider members of Africa’s Muslim export capabilities of member countries.

24 TRENDS | Fall 2018


Ripe for Digital Banking
Kundukulam: Africa is home to the wor-
ld’s fastest growing population, which
is predominantly unbanked. IMF esti-
mates that only 25 per cent of the po-
pulation of Sub-Saharan Africa have
a bank account. At the same time, the
region currently has 420 million unique
mobile subscribers, with a 43 per cent
penetration rate, and it is expected that
this number will hit over half a billion by
2020, making Africa the fastest growing
mobile market.
Thus, this is a market ready to be tapped
and a perfect region for digital banking
to be introduced and has the potential to
be a huge success. Due to the geographic
vastness of the continent, people would
find it more convenient to use online pay-
ment channels to do their transactions.
© Shutterstock
ITFC’s Africa Dream
Eng. Sonbol: Here at the International Is-
lamic Trade Finance Corporation (ITFC),
we recognise that Islamic finance is in-
creasingly well placed to make significant
contributions towards meeting Africa’s fi-
nancing needs. In 2017 alone, ITFC provi-
ded US$826 million to support important
sectors such as agriculture, energy and
entrepreneurship in Sub-Saharan Africa
region (SSA). In addition, from 2008 and
to date, ITFC has provided around US$4
billion of trade financing to the SSA re-
gion, and over $15 billion on the African
continent, all fuelled by a confidence in
the potential of the region and a drive to
shape a shared, prosperous destiny.
Seamless Banking Experience with Noor
Kundukulam: At Noor Bank, we have
Hani Salem Sonbol
Chief Executive Officer
Renoy Kundukulam
Head of Wealth Management
also relaunched our digital platform
with a number of services, which will
make online banking transactions ex-
tremely convenient for the clients to
do from the comfort of their home.
We also have our wealth management
team, which addresses numerous que-
ries from existing and potential clients
based in Africa, who are interested in
investing our sharia-compliant wealth
management products such as sukuk,
structured products, mMutual funds,
takaful products.
Our client-servicing model for Afri-
ca is governed by a robust, cross-bor-
der regulatory framework, which takes
into account both Africa and UAE’s
cross-border banking and compliance
laws and provides a seamless banking
experience for our African clients.
Fall 2018 | TRENDS 25