Emerging Markets

Next stop for Islamic finance… Africa?

The U.K. and Hong Kong opened their doors to Islamic finance with high-profile "sukuk" debuts in 2014, but in the coming year, African countries might create waves in the $100 billion-a-year debt market.

Sukuk issuance is a form of financing used by both Islamic governments and companies that is compliant with Islamic sharia law – which sees the generation of income from interest as usury. Sukuks are commonly likened to conventional bonds, but differ in that investors receive a share of an underlying asset, along with the commensurate cash flows and risk, rather than ownership of just a debt.


Jankara market, located on Lagos Island and the skyline of Lagos, Nigeria.
Derrick Ceyrac | AFP | Getty Images

Credit rating agency Standard & Poor's sees total sukuk issuance across the world for 2015 at $100-$115 billion. For comparison, the global debt market stands at around $100 trillion in amounts outstanding.

Several countries in North and sub-Saharan African are already planning sukuk debuts for this year, including Tunisia, Egypt, Nigeria and Kenya. This follows first-time issues by South Africa and Senegal—as well as the U.K., Luxembourg and Hong Kong—in 2014.

"The Senegal issuance could open the market for Africa," Mohamed Damak, global head of Islamic finance at Standard & Poor's said on Wednesday at a news conference.

In Damak's opinion, sukuks provide a natural answer to African governments' need to remedy a lack of infrastructure in their countries, given that this type of issuance requires an underlying asset that could be a finance project.

"Infrastructure spending and Islamic finance can combine naturally," he said.