African central banks are stepping up efforts to promote Islamic finance as part of a broader push to boost financial inclusion and diversify funding for productive investments, a new study shows.

Islamic finance operates under Shariah law, which prohibits interest (riba) and emphasises risk- and profit-sharing among parties to a transaction.

A global report, Islamic Finance (2025), by the Islamic Development Bank (IsDB) Group and the London Stock Exchange Group (LSEG), says banking regulators across Africa are proactively licensing Islamic financial institutions, allowing conventional banks to offer Shariah-compliant products, strengthening Shariah governance and establishing legal frameworks to support the sector’s growth.“Central banks are playing an active role in pushing African countries towards Islamic financing that is gaining traction in Sub-Saharan Africa,” the report says.“There is particularly strong growth in Islamic banking in sub-Saharan Africa, where there are now 104 Islamic banks and banking windows scattered across 28 countries. This has been encouraged by the region's central banks.”Uganda Islamic banks.

The report notes that several conventional banking groups have launched Islamic windows, including FNB Islamic and Coris Bank Baraka, expanding Islamic banking into niche markets such as Benin and Togo. These services are offered by South Africa-based First National Bank and Burkina Faso-based Coris Bank, respectively.“A common driver of Islamic banking expansion in the region is the proactive role of central banks. One example is Uganda, which now hosts two Islamic banks, and where its Insurance Regulatory Authority is working to introduce Takaful by licensing the country’s first Shariah-compliant insurance operator,” the report says.

Uganda passed legislation in 2024 allowing Islamic banking and is currently developing guidelines for Islamic insurance. Eswatini’s central bank is also seeking to attract Islamic banks, approving activities such as Islamic deposits, Shariah-compliant financing products and Islamic financial instruments.

The report adds that regulators in Somalia, Kenya, Tanzania, Algeria and Uganda are working to improve their Islamic finance regulatory and Shariah governance frameworks, with progress recorded in 2025.

Sukuk bondsTanzania has made notable advances, including issuing sukuk bonds, expanding takaful and Islamic banking through new market entrants and establishing a legal framework for Islamic finance. In December 2025, the Bank of Tanzania gazetted non-interest banking regulations to guide the sector.

Islamic banking was introduced in Tanzania in 2008 and has gained popularity, supported by the country’s large Muslim population. In 2021, Imaan Finance issued Tanzania’s first sukuk bond, approved by the Capital Markets and Securities Authority, which was oversubscribed by 36 percent.

The report says the development of Shariah-compliant markets has positioned Ethiopia as an attractive destination for foreign direct investment from Islamic finance hubs in the Middle East and Southeast Asia, diversifying the country’s investor base and strengthening economic ties.

Kenya offers a range of Shariah-based banking, capital markets, investment and insurance products. In 2023, the Capital Markets Authority approved Kenya’s first sukuk bond, which raised Sh3 billion ($23.25 million) for housing projects.$6 trillion industryIslamic finance is increasingly viewed as a catalyst for financial inclusion, stability and diversified development financing in Sub-Saharan Africa, particularly for small and medium-sized enterprises and start-ups that struggle to access conventional bank credit.

The report attributes the sector’s growth to stronger governance, rising awareness and sustainability momentum.“Looking ahead the industry (Islamic finance) is expected to be shaped by key trends including cross-border connectivity, regulatory advancements and strategic initiatives led by national governments over the coming five years,” the report says.“Islamic finance is at its core driven by values. It is anchored in the principles of fairness, transparency, and social justice,” the report says.

Globally, Islamic finance has grown from a $1 trillion industry in 2010 to nearly $6 trillion in 2024 and is forecast to reach $9.7 trillion by 2029. Islamic banking accounts for more than 70 percent of total assets, while sukuk has reached a valuation of $1 trillion.

Countries such as Malaysia, Indonesia and Saudi Arabia have demonstrated how Islamic finance instruments can mobilise large-scale capital for infrastructure, housing and renewable energy projects.

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