Islamic finance in Africa has been predicted to have a promising future following tremendous growth opportunities for the sector to flourish in Africa.
Africa’s strong demand for Islamic financial services and products were highlighted in the inaugural Africa Finance Forum 2015 held in Abidjan.Recent developments have seen African governments focusing more on creating a more enabling environment for sukuk issuances. Sukuk is the equivalent of the Western finance bond which adheres to Sharia law.
Those that have not tapped into the sector have expressed keen interest in the market for infrastructure financing with legal frameworks underway 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 Islamic insurance (takaful).
Islamic finance is rapidly growing in many parts of the African continent with notable Muslim communities specifically in East Africa, North Africa and West Africa.
The sukuk sector has also been reported to be a catalyst in mobilizing funding into Africa.
It is estimated that Sh98bn (US$0.93bn) was pumped into the region per year to finance manufacturing and large scale infrastructure projects.
The “Islamic Finance in Africa: A promising future” report comes at a time when the global banking community is attempting to integrate Islamic finance into the main banking sector.
However, the report has pointed out that some of the challenges likely to suffocate the financial sector include regulatory inconsistency, labour shortage, and poor consumer financial literacy. Besides, with sub-Saharan Africa still accounting for more than 17 per cent of the world’s two billion unbanked adults, financial inclusion still remains the greatest challenge.