THE DEVELOPMENT OF ISLAMIC
BANKING AND FINANCE
IN AFRICAN COUNTRIES
17TH FEBRUARY, 2021
PREPARED BY ALHUDA-CIBE
Presenter Sheikh Mohamed Issa, Shari’ah Advisor and Consultant
Table of Contents
Africa-Demographical state Opportunities for Islamic
in year 2020 banking and finance in Africa
Africa and Islamic banking
Challenges facing Islamic
and finance history
banking and finance in Africa
The existing religio-political
What to be done?
landscape
Conclusion
Islamic Banking and finance
growth trends in Africa
Demographical State-Muslims in Africa
Muslims in Sub-Saharan
Africa by sects
The majority is Sunni
Muslims sects of Hanafi,
Hambali, Maliki and
Shafi’i
Demography and Financial Inclusion
* Low financial
Inclusion in Sub-
Saharan Africa is an
opportunity for Islamic
banking and finance
2.0 Africa and Islamic banking and finance history
Although there are some earlier
examples mentioned by scholars,
Africa was a inventor of modern such as rural banks in Pakistan in
Islamic finance although currently it 1950s (Wilson, 1983, p. 75),
is not a true innovator for the Islamic
finance industry Yet Mit Ghamr Savings or Social
Bank established in 1963 in Egypt is
generally mentioned as the first
Islamic banking prototype in the
Mit Ghamr Saving bank was
world.
established in Egypt in 1963 long
before middle East and Asian Despite that there is not the suffix of
countries, now dominating Islamic ‘Islam’ in its name, the bank is
banking and finance, could dream of known to have been established on
Islamic banking and finance and functioned according to Islamic
rules and regulations.
3.0 The existing religio-political landscapes
The political landscape in Africa
affects the establishment and growth
of Islamic banking and finance
Since Islamic banking and finance is
based on Islamic religion teachings,
it is affected by the state religion
Islam
Christianity
Secularism
4.0 IB & F Growth Trends in Africa
The Islamic finance industry is However, a lack of political will, a
currently valued at $2.2 trillion and lack of qualified personnel and a lack
is projected to reach $3.8 trillion by of standardized regulations as well as
2022, according to the Islamic the absence of an active Islamic
Finance Development Report. finance market has stunted its growth
trajectory
A continent of 1.3 billion people
where around 44 percent are
Muslim has huge potential to shift
According to the Islamic finance
the growth curve of Islamic finance Development Report, Islamic finance
assets in Africa stood at $31.1 billion
to cater to such a large population
in 2016 with 206 Islamic finance
institutions operating across Africa.
4.0 IB & F Growth Trends in
Africa
There have been a total of 147 Sukuk There have been developments in
issuances during 2016, mostly within the Sukuk sector where, in 2014,
sub Saharan Africa which proves South Africa issued the largest
there is a growing interest in Islamic sovereign Sukuk issuance in Africa
finance across the continent
Kenya has made revisions to its
Muslim minority countries such as
banking and capital markets
Kenya and South Africa are gearing
regulations to pave the way for a
up to accommodate Islamic finance
operations sovereign Sukuk issuance in the
future.
4.0 IB & F Growth Trends in Africa
The industry also witnessed Francophone Africa
making its debut to the Sukuk market with two
issuances coming out of the Ivory Coast
Some African countries have already started
taking steps to support the local uptake of this
financing mechanism
Among others, Kenya, Senegal, Djibouti,
Uganda have all introduced legal and regulatory
frameworks to promote the development of
Islamic finance products in their respective
jurisdictions
4.0 IB & F Growth Trends in
Africa
Takaful, both general and
Apart from these promising
Family Takaful, are far away
growth trends, the growth is
prospects in many African
largely limited to Islamic banking
countries
Islamic Microfinance is still in a
niche stage in Africa, with large
With little developed or absence
Muslim populations not meeting of Takaful and Islamic
banking financial inclusions microfinance, IB & Finance in
requirements Africa is doomed to grow slowly
compared to the other parts of
the world
5.0 Opportunities for IB & F in
Africa
Africa has a chance to be a Huge infrastructure needs
true innovator for the Islamic Foreign investment needs
finance industry because Underdeveloped natural
there are untapped
resources and resource
opportunities
allocation needs
Large Muslim population
mainly unbanked or
Large youth population
underserved Failure of conventional
Large financial inclusion gap banks
5.0 Opportunities for IB & F in
Africa
However, the real
potentials for growth
of Islamic banking
and finance in Africa
depends on
understanding the
following parameters
5.0 Opportunities for IB & F in
Africa
The development of Islamic Finance Moreover, financial deepening and
could also facilitate financial deepening inclusion could be further enhanced
by increasing the depth and breadth of if new instruments are inspired from
intermediation, extending the reach of the
Islamic finance, necessarily being
system (e.g. extension of maturities and
Shari’ah compliant
facilitation of hedging and risk
diversification)
At the same time the much larger non- In addition, SSA countries could tap
Muslim population could find Islamic into growing Islamic financial
financial instruments attractive in
markets to meet infrastructure
broadening the range of available options,
particularly for SMEs and micro-credit financing needs.
5.0 Opportunities for IB & F in
Africa
By opening doors to Islamic finance, Lastly, Islamic financing can help develop small
and medium enterprises and microfinance
SSA can seek to attract capital from activities, given that African households and
the Gulf and other Muslim countries, firms have less access to credit from
whose savings rates are high and conventional banks compared to other
projected to grow significantly developing regions
Islamic banks can tap a segment of depositors
that either do not participate or do not trust
In particular, Sukuk financing, which interest-based banking
is expanding in other countries, could They can also promote SMEs’ access to credit
through expanding acceptable collaterals by
be a useful tool to finance extending funds on a participatory basis in which
infrastructure investments collateral is either not necessary or includes
intangible assets
6.0 Challenges and their mitigations
Knowledge Gap
Regulatory Gap
Products Diversity Gap
Financial Inclusion Gap
Institutional Challenges
7.0 What to be done?
Creating Islamic Finance
ecosystem
Financial regulations
Supervisory and Regulatory
Regulations
Takaful development
Microfinance development
Institutional capacity building
Conclusions
How governments, organs of Raising stakeholders' awareness
state and the people of Africa and understanding of Islamic
respond to the challenges of finance products and practices
Islamic finance and the extent to and the additional financing
which they adopt Islamic finance options they present can spur
as a financing tool could have a public and private sector
significant impact on the demand for Islamic finance and
macroeconomic development of the regulatory reforms required
the continent in the foreseeable to meet this demand
future
Conclusions
Bridging the regulatory gap can, in Moreover, providing African
turn, help address Africa's financial governments, companies and individuals
inclusion deficit by encouraging the with greater access to finance can play a
major role in bridging Africa's
growth of—and innovation in—
infrastructure gap and promoting
Shari'ah-compliant products. economic growth and social prosperity
This will result in increasing the across the continent
range of financial institutions, Considerable work is still required to
products and services available to overcome the challenges standing in the
the populace and, accordingly, way of Islamic finance flourishing in
increasing financial inclusion Africa, but clearly, the rewards will
outweigh the efforts
© Sheikh Issa-CIFCA
