Africa is a resource-rich continent and one that is also geographically diverse. It enjoys political, economic, social and ethnic diversity, and is home to 16.7% of the world’s population, half of which are Muslims. Representing approximately 640 million people, this particular sub-sector of the African population offers significant growth opportunities in the Islamic finance sector.
ACCORDING TO THE STANDARDS & POOR’S REPORTS, ALTHOUGH GROWTH WAS RECORDED AT A MUCH SLOWER PACE THAN EXPECTED, THE GLOBAL ISLAMIC ASSETS GREW 10.6% IN 2020.
Just before the global COVID-19 pandemic overwhelmed the world, it was reported that Islamic financial activities were on the rise in as many as 50 countries of the Middle East and Africa. There were encouraging signs of steady growth as regulatory and technological developments served to further enhance the sector’s enabling environment, not only for Islamic financial institutions but also for conventional institutions setting up Islamic windows. The pandemic undoubtedly had a major financial impact, both at a macro and micro level. Economic uncertainty and the resulting disruption to lives and livelihoods fuelled high levels of volatility in the global financial markets. However, as we observed in the 2008 financial crisis, Islamic finance remained resilient amid the crises. According to the Standards & Poor’s reports, although growth was recorded at a much slower pace than expected, the global Islamic assets grew 10.6% in 2020.
This growth, however, is yet to cascade to the African continent. In November 2020, the rating agency, Moody’s, highlighted the stark contradiction; 18% of the world’s Muslim population is based in sub-Saharan Africa, however, the banking assets of that region represents only 1% of the global Islamic banking assets.
Analysts attribute these strikingly low numbers to a lack of access to banking services and financial inclusion as well as inadequate public awareness. However, they are optimistic about the financial potential in countries such as Senegal, Morocco, Sudan, Egypt, Nigeria and South Africa. These countries have an active Muslim population seeking financial solutions befitting their religious beliefs.
ISLAMIC SOCIAL FINANCE INSTRUMENTS, SUCH AS ZAKAT, SADAQA, WAQF AND QARD HASAN PLAY A KEY ROLE IN REDUCING FINANCIAL EXCLUSION, FOSTERING INCLUSIVE GROWTH AND ENHANCING SUSTAINABLE DEVELOPMENT.
Optimism about the future growth of Islamic finance in Africa is also ignited by reports of positive developments in Islamic sukuk. South Africa, Nigeria and Egypt have announced their plans to issue sukuk as means to raise funds from international markets. These plans form part of the financing recovery process as the world starts to recover from the COVID-19 pandemic. It also bodes well for the uptake of Islamic finance.
Whilst the future looks good for Islamic finance in the African continent, there is, however, a need for Islamic financial institutions to play an active role as financial intermediator for society, particularly in the backdrop of the continent’s poverty levels.
Social finance must be the component that complements the mainstream financial system, focusing on alleviating poverty and providing sustainability to socio-economic development. Islamic social finance instruments, such as zakat, sadaqa, waqf and qard hasan play a key role in reducing financial exclusion, fostering inclusive growth and enhancing sustainable development. These instruments are fundamental constituents of the Islamic finance ecosystem and must be integrated into a holistic financial solution.
At its core, Islamic financial institutions fulfil a social, moral, ethical, and religious obligation. It is a moral code that promotes socio-economic justice, fairness and equal distribution of resources through social protection which is precisely what the African continent needs to enable a dignified existence for its people.
