There has been an escalating wave of conversations, summits and expos held to provide guidance to catering to the growing Muslim demographic. African governments have taken note of the financial potential in providing Sharia- compliant products for a more inclusive financial prospect for their citizens. The expansion of products that attract the Muslim consumer by African countries is in line with the global buy in of targeting the affluent Muslim middle class. With an expected worth of US $ 5 trillion by 2020 as reported by Pew Research, more industries are expanding on their products and services for the halal economy.
A report by Malaysia International Islamic Finance Centre report states that the interest of African countries in the Islamic financial sector extends as far as 2013. Since then, countries such as Nigeria, Senegal, Cote d’ivoire and Togo have issued sukuk/ Islamic bonds and other financial services for Muslim consumers. There are over 50 financial institutions offering Sharia–compliant finance in Africa. Thus, the wake of inclusive finance in Africa sees governments meeting the demand of an estimated 250 million African Muslims while also finding alternative channels for the unbanked African consumer.
The Islam finance asset is estimated to be worth US $ 3.2 trillion by 2020. Currently, African banks such as the National Bank of Egypt, FNB and Absa bank in South Africa have set up Islamic ‘windows’ that offer Sharia-compliant products. Kenya plans to be the hub of Islamic finance in the continent. The country is leading with the number of finical institutions catering to their Muslim client base. Kenya currently has three Islamic banks: First Community bank, Gulf Africa bank and recently the Dubai Islamic bank owned by the United Arabic Emirates. Countries that have followed suite in expanding on legislation for provision of Sharia-compliant products are Gambia and Morocco, which has also set up Islamic financial institutions.
In this perspective the African financial sector is no longer just offering designed products to their Muslim consumers, however we now see financial institutions and investors opening isolated Sharia-compliant institutions, this not only catering to the global Muslim consumer but also expanding the financial offering for non-Muslim consumers. The private sector is also moving into the space of broadening the financial landscape in Africa, as seen with Ugandan investor Haruna Sebaggala who plans to establish a fully-fledged Islamic Institution called Midsoc. While Sterling bank PIC in Nigeria plans to get a banking license which will allow the institution to develop a stand-alone non- interest bank in the country.
Islamic financial products in the continent are still in the infancy stage of distribution and availability. This has opened an opportunity for organisations from the UAE to invest in African countries which want to draw in Muslim tourists and investors. In conjunction to this, African Muslim investors have said to have opted to invest their money in projects abroad such as Dubai real estate. The adoption of financial institutions providing investment options such as sukuk, provides more investment options for African Muslims. Countries such as Kenya have localized their Sharia-complaint financial offerings. The government has restructured its banking regulations which now allow for the first sovereign sukuk sector in the 2017/18 budget. This means the country will be able to issue Islamic bonds/sukuk finance in coloration to its currency. South Africa is currently working on a local currency based sukuk which would set a benchmark for local corporate to invest in the market. Kenya’s finance market is also looking to develop its ‘Islamic window’ investment options. The country’s Lapfund pension trust received a license from the Retirement benefit authority to provide Sharia-complaint scheme titled LapFund Amal in 2018.
Moving to Islamic fintech
There is much opportunity in the development of digital sharia-complaint financial offerings, especially in the African sector as countries try to tap into the Muslim tourism space. Internationally Dubai is one of the countries working on leading the drive towards fintech in the Islamic finance sector. Its Fintech Hive at their international financial center (DIFC) has set the path for the country’s goal to be the global hub for Islamic Fintech. The hub provides platforms which bring financial firms and technology companies together to explore the possibilities within this sector through collaboration and innovative projects. Countries in East Africa are working parallel to the UAE with investigating the prospects of Sharia-complaint fintech. East Africa Islamic economy 2018, summit’s main theme looked at Fintech as a driver for the Islamic economy in East Africa as financial inclusion in the region. Ernst and Young predict that the emergence of Islamic fintech in African may attract 150 million new consumers by 2021. While the Kenyan mobile operator Safaricom has already set its foot in the Islamic fintech space. The company has partnered with Islamic Gulf African bank with the plan to launch M-Sharia which is a Sharia-complaint mobile banking service through M-Pesa. As Kenya aims to be the hub for Islamic finance in Africa, the government as well as finance institutions in the country will need to channel more focus to the potential in the fintech sector. Businesses globally are taking note of the potential growth of digitalizing the Islamic finance industry as noted by Dubai Islamic bank (ADIB), which shifted its focus into the fintech sector. This resulted in the company teaming up with IBM to create a digital studio. The space will witness the creation of innovative projects across the banking sector such as mobile banking and apps on IBM’s bluemix cloud platform. African countries that aim to lead and establish locally influenced yet globally appealing Islamic fintech products will need to look into creating spaces that enable the exploration and collaboration for this sector.