Sukuk issuance continues to expand at a fast pace across Africa in line with expectations, as outlined in an 2018 report “Promising growth prospects for Islamic finance in 18 African Countries”. Since the prior report, there has been approximately $0.5 billion of African sukuk, or Islamic bond, issuance. Observers estimate that African sukuk outstanding still makes up just 0.5 percent of global sukuk outstanding.
Sukuks continue to provide alternative funding sources for both African sovereigns and financial institutions, and issuance is supported by the increasing financing needs in Africa (especially for infrastructure projects) and global investors’ growing comfort with Islamic instruments. In the African banking sector, there has generally been resilient performance of Islamic banks or windows despite the challenging operating environment in many African countries.
In South Africa, Al Baraka Bank (not rated), a Shariah compliant Islamic bank, reported robust earnings over the six months from January through June 2019. Reported net income increased 12.4 percent compared to the same period last year, supported by earnings from advances and equity finance, which increased by 13.1 percent. The bank also managed its capital and liquidity through the issuance of a ZAR200 million local Sukuk, which was fully subscribed, in the fourth quarter of 2018.
At FirstRand Bank Limited’s (Baa3 stable) FNB (First National Bank) arm, reported deposit growth was robust. FNB highlighted its Islamic transactional deposits as a contributor to its solid deposit growth. Islamic transactional deposits at FNB was the fastest growing deposit category at 35 percent (over the financial year ending in June 2019), followed by commercial deposits, which grew 16 percent.
In Nigeria, Sterling Bank Plc (B2 stable), a mid-tier commercial bank with an Islamic window, through which the bank offers Shariah-compliant products, reported growth in 2019 half-year profits from its window of 24 percent versus 2018. This growth in Sterling’s Islamic department’s profits occurred despite a 16 percent contraction of the segment’s total assets. However, Sterling has flagged its Islamic finance division (opened in 2013) as both a source of strategic differentiation and asset growth for the company. As such, we expect growth in this segment to resume over the next 12 to 18 months.
At Jaiz Bank (unrated), Nigeria’s only Islamic bank, over 2018, net income grew 55 percent, supported by a 37 percent increase in financing and investments. The results mark a fifth consecutive year of income growth and profitability at the bank. Additionally, the bank’s liquidity was supported by deposit growth of 25 percent over 2018, significantly higher than Nigeria’s banking system’s deposit growth rate of 12 percent over the same period.
It is expected that Islamic bank performance in large African banking systems such as South Africa and Nigeria will remain robust over the next 12 to 18 months, and that 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.
In October and December last year, the governments of Morocco (Ba1 stable) and Nigeria (B2 stable) issued $105 million (dollar equivalent) and $327 million (dollar equivalent) of sukuk, respectively. It was an inaugural issuance from Morocco and the transaction was 3.6 times oversubscribed, according to reports. The Nigerian, Ivorian and South African governments are now the largest issuers of Sukuk in Africa.
Structural constraints that have historically prevented sukuk markets from developing even faster remain, however. These 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. Nonetheless, we expect robust issuance in African sukuks over the next 18 months as more African sovereigns seek to diversify their funding base. Egypt (B2 stable), Algeria (unrated), and Sudan (unrated) have expressed interest in issuing sukuk in the recent past. In April this year, Egypt set up a Shariah supervisory committee to oversee sukuk issuance. (
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