Islamic Banking and Finance in Sub-Saharan Africa: Recent Developments and Existing Challenges

Abstract

Although Islamic banking has been developed in Gulf and South East Asian countries, Africa, with an estimated 50 percent Muslim population, is trying to adapt itself with this industry until recently. As of end-2012, about 38 Islamic finance institutions-comprising commercial banks, investment banks, and takaful (insurance) operators-were operating in Africa. South Africa, Nigeria, Kenya and Mauritius are advancing in Islamic banking in Sub Saharan African. Growing middle class combined with its young population, the development of infrastructures and necessary changes to the regulatory and policy framework among others are the good news. However, liquidity problems, slow development of new products, regulatory issues, competition from bigger conventional banks and so on remain the challenges. However, the industry is improving and the future seems bright nowadays since many countries are adopting structural and regulatory changes. With respect to sukuk, several countries are joining the market to attract their local Muslim and Gulf and Southeast Asian investors who are interested in Shariah-compliant instruments that greatly contributes for financing huge projects and infrastructural developments. Lack of skilled manpower and public awareness together with economic, financial, legal and regulatory challenges remain prevalent.

Keywords: Islamic Banking, Sub-Saharan African, Sukuk

JEL Classification: F21, G21