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Islamic finance in Africa to grow as sukuk issuance strengthens- Moody’s

Africa’s Islamic banks will continue to perform well and African sukuk issuance will keep expanding steadily to fund sovereigns and financial institutions, supported by global investors’ growing comfort with Islamic instruments, Moody’s Investors Service said in a report released on Tuesday.In October and December last year, the governments of Morocco and Nigeria issued $105 million and $327 million of sukuk, respectively.

It was an inaugural issuance from Morocco and the transaction was 3.6 times oversubscribed, according to reports.

“Islamic bank performance in large African banking systems such as South Africa and Nigeria should remain robust over the next 12 to 18 months,” Akin Majekodunmi, VP-Senior Credit Officer at Moody’s said in a statement issued in Nairobi.

“And Africa’s large Muslim population, which is predominantly unbanked or under-served, will continue to provide a solid foundation in which Islamic banking assets, and thus earnings, can grow rapidly,” he added.

According to the rating agency, structural constraints that have prevented sukuk markets from developing even faster remain.

 These constraints include the legislative complexity and time associated with sukuk issuance, especially for new issuers, and the need to identify physical collateral (for example, infrastructure projects) to support the sukuk structure, noted Moody’s.

Moody’s expects robust issuance in African sukuks over the next 18 months as more African sovereigns seek to diversify their funding base.

Egypt, Algeria and Sudan have recently expressed interest in issuing sukuk. 

In April, Egypt set up a Shariah supervisory committee to oversee sukuk issuance.

Published on 28.04.2020

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