Africa builds an appetite for Islamic finance, says IDB unit

Despite strong growth in the Middle East and Southeast Asia, Islamic finance has lagged in Africa, home to a quarter of the world’s Muslims, presenting an opportunity for ICD, the private sector arm of the Jeddah-based Islamic Development Bank.

It helped arrange Senegal’s debut 100 billion CFA francs ($208 million) Islamic bond, also known as sukuk, last June.

“We are actually exploring with Nigeria and Ivory Coast,” said Khaled Al-Aboodi, chief executive of ICD, speaking on the sidelines of the Africa CEO Forum in Geneva.

Nigeria, which has the largest Muslim population in sub-Saharan Africa, is trying to establish itself as the African hub for Islamic finance. Senegal, meanwhile, is discussing another sukuk.

“The issuance by Senegal has opened up the whole region. We will … hopefully support at least two countries in 2015 to issue a sukuk,” said Al-Aboodi.

Nigeria’s neighbour Niger has signed up for a sukuk programme worth 150 billion CFA francs ($260 million), although the timing has yet to be determined.

“Our preference and I think the government’s intention is to try to do this before the end of the year,” Al-Aboodi said, adding that the tenor depended on its structure and investor appetite.

Niger’s sukuk may broaden the market further as it is a project-financing format known as istisna, whereas Senegal used a sale-and-lease-back structure known as ijara.

More sovereign sukuk could encourage companies to use Islamic finance too, Al-Aboodi said, although only deals of $200 million or more were economically viable. South Africa also issued a sovereign sukuk last year, a $500 million, five-year bond.

ICD is planning its own sukuk this year as part of its $1.2 billion borrowing programme and is obtaining a second credit rating after Fitch Ratings gave it an AA rating in November. [ID: nL6N0TG1S9]

“We will be announcing our MTN (medium-term notes) programme for this, because we want to issue not just one time, because we will have to come back again to the market.”

ICD is expanding in Africa via its Tamweel Africa Holdings subsidiary, which has stakes in Islamic banks in Senegal, Niger, Guinea and Mauritania, and plans to set up new banks elsewhere.

“The board approved to expand to Mali and Benin, so we are working now to go and establish this, and Ivory Coast may be coming as well,” Al-Aboodi said.

Another avenue of expansion is a partnership with Cairo-based African Export-Import Bank [AFEIP.UL], which could provide financing guarantees to Islamic banks and support new sectors like renewable energy, he said.

ICD also plans to set up a small- and medium-sized enterprise investment fund and a regional leasing company.

Al-Aboodi said it is also trying to expand its footprint with deals in Nigeria, Cameroon and Chad, but didn’t specify what kind of deals, and may broaden out into south and eastern Africa.