Sunday, Sep 04, 2016

Dubai: Africa’s extensive infrastructure development needs to create a fertile environment for the growth of sukuk issuance over the next decade according to rating agency Standard & Poor’s.

“We believe African sukuk can provide diversification benefits for Islamic investors as well as additional financing opportunities. We think sovereign sukuk issuance could, in the long term, facilitate the development of Sharia-compliant private-sector sukuk on the continent. Given Africa’s significant funding and infrastructure needs, sovereigns there could benefit from an active sukuk market,” said S&P Global Ratings credit analyst Samira Mensah.

So far the African market comprises only $2 billion (Dh7.35 billion) of sukuk from a handful of issuers. By contrast, 17 sub-Saharan African (SSA) governments S&P rate issued $46 billion of conventional debt in 2015 alone.

Despite sukuk’s widespread appeal to investors, analysts expect that only a few African countries will tap the sukuk market over the next 12 months, for several reasons. First, we see a general lack of clear legal and tax regimes to support a thriving sukuk market, and in many cases, the complexity of structuring sukuk could deter issuance.

Multilateral institutions could become increasingly important in enabling countries to enter the sukuk market. This was illustrated by Senegal’s issuance of sukuk in 2014 and 2016, aided by technical support from the Islamic Corporation for the Development of the private sector. “In our view, the increasing involvement of multilateral institutions is one of the keys to unlock the full potential of the continent’s fledgling sukuk market,” Mensah added.

By Babu Das Augustine Banking Editor

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