African governments are looking to sharia-compliant financial markets to attract investment from the Middle East. The trend is just gathering strength, and experts expect more funds to flow into infrastructure and other major projects.
The latest wave of finance to reach African corporations and governments is coming from the Middle East, with an increasingly large sharia-compliant component.
The universal role of insurance as a key sector in the financial service system is increasingly becoming dominant and accepted even among segments of the society which hitherto believed that the practice of insurance is unethical and therefore unlawful.
The followers of the Abrahamic faiths (Jews, Christians and Muslims) are among the notable groups of people that will always spring to mind when discussing the alleged unlawfulness of conventional insurance practice.
Leaning towards a dollar-denominated, five-year sukuk, using an ijara structure. South Africa is expected to launch its debut Islamic bond issue during the first quarter of 2014 as it seeks to diversify its financing sources, the chief executive of Al Baraka Banking Group told Reuters on Monday.
"There is no mandate yet but we're been advising the government. We expect the sukuk to be launched during the first three months next year," Adnan Ahmed Yousif said on the sidelines of the Global Islamic Economy Summit in Dubai.
Africa is for the first time embracing large-scale Islamic finance as countries seek to tap cash-rich Middle Eastern investors to finance their large infrastructure programmes.
The market for sukuk, or Islamic bonds, received a boost this month after Nigeria became the first major economy in sub-Saharan Africa to use the $100bn a year Islamic market, followed days later by Senegal.
The Malaysia-based International Islamic Liquidity Management Corp (IILM) has reshuffled its sharia board, losing four of its original six members including senior Saudi and Qatari scholars, according to the body's website.
The IILM, backed by the central banks of nine countries as well as the Jeddah-based Islamic Development Bank, was founded in October 2010 to help develop cross-border markets in Islamic financial instruments.
A state government in southwestern Nigeria is planning to raise a sukuk bond worth 10 billion Nigerian nairas (some $62 million) from the capital market to fund infrastructural development, the first such step by Africa's second biggest economy.
"(The state) is awaiting final approval from the Security and Exchange Commission (SEC)," Semiu Okanlawon, spokesman for Osun State Governor Rauf Aregbesola, told Anadolu Agency.
Cocoa-producing Osun State plans to issue Nigeria's first sukuk bond, starting with 10 billion naira ($62 million), before the end of July, a banking source close to the deal told Reuters on Tuesday.
The planned 7-year paper would be the first sukuk bond to be issued in Africa's second-biggest economy and is part of a 60 billion naira debt raising programme by Osun State, which started last year, the banking source told Reuters.
Management of the International Islamic Liquidity Management Corp (IILM) is meeting this week to try to minimise delays to the issue of its first sukuk, a source close to the programme said on Tuesday.
The official, who cannot be named as he is not authorised to speak publicly to media, said the meeting would discuss regulatory treatment of the sukuk, the last remaining hurdle before issuance.
Nigeria has issued new guidelines to oversee the operation of its takaful (Islamic insurance) industry, favoring a centralised format that is gaining favour across the Islamic finance world.
Africa's top oil producer and second biggest economy is trying to establish itself as the African hub for Islamic finance, having approved rules for issuing sukuk in March.
Few years after the introduction of Takaful Insurance to boost insurance penetration in Nigeria, performance of the policy has been above average.
Speaking on the new Insurance option, Vice-Chairman Chartered Insurance Institute of Nigeria (CIIN) Oyo State Chapter, Babatunde Omosola, stated at the 2013 media retreat in Ibadan, Oyo State that Takaful Insurance has attained about 70 per cent penetration in the country.