Kenya is among the 18 African countries that have the largest potential for growth of Islamic banking and debt securities or sukuk, rating agency Moody’s has said.
The US agency forecast at least Sh100 billion ($1 billion) of sukuk issuance in Africa over the next 18 months.
Moody's estimates that the share of Islamic banking assets — as a percentage of total African banking assets — will rise to over 10 per cent over the next five years, from its current level of below five per cent.
“Moody's has identified 18 African countries that have the greatest growth potential for sukuk issuance, as well as Islamic banking. These include Egypt, Morocco, Senegal, Nigeria, Sudan and Kenya,” it said in a statement.
Vice president and senior credit officer Akin Majekodunmi said Islamic nations in Asia and the Gulf region had large pools of capital, which they can deploy to the African continent through debt securities.
"The desire within Africa for stronger investment links with the fast-growing economies in the Gulf and Asia that have large Muslim populations with large pools of capital will help drive the issuance of sukuk on the continent," said Mr Majekodunmi.
A major driver of the expected growth of the Islamic finance products is the greater need for money across the continent.
“Islamic finance is set to grow steadily across Africa as financing needs increase and global investors become more comfortable with the legal structures of Islamic debt securities,” the agency said in the statement.
For the growth to take place, Moody’s say, the current population of Muslims in Africa will form a major foundation, even as the products also get utilised by non-Muslims.
“Africa's large Muslim population, which is predominantly unbanked, will also provide a solid foundation for the growth of Islamic banking assets,” said Moody’s.
Moody’s said that since the start of 2014 there had been $2.3 billion of African sukuk, or Islamic bond issuance, providing new funding sources for both sovereigns and financial institutions.
However, African sukuk makes up just 0.5 per cent of global sukuk issuance.
The rating agency said that as African sovereigns seek to diversify their funding base, the amount of sukuk they issue will likely increase with Egypt, Algeria, Morocco and Sudan having already expressed interest in issuing sukuk this year or next.