The global Sukuk market surged in the first half of 2017, but African issuers did not contribute to the trend with only $2bn of Sukuk issued so far by a handful of African sovereigns, mainly since 2014.
S&P has published a report called Sukuk Are A Natural Fit For Africa, But Not A Simple One which says that African Sukuk can provide diversification benefits for Islamic investors as well as additional financing opportunities.
The agency believes that sovereign Sukuk issuance could, in the long term, facilitate the development of Shari’ah compliant private sector Sukuk on the continent. Despite Sukuk’s widespread appeal to investors, only a few African countries are expected to tap the Sukuk market over the next 12-18 months because issuing this Islamic financial instrument is not a simple matter.
“Among the challenges are the lack of clear legal and tax regimes to support a thriving Sukuk market, and in many cases, the complexity of structuring the instrument that can slow entry to market,” said S&P. “In addition, local regulators have yet to implement a framework to ensure the proper conduct of Islamic finance in their respective jurisdictions.”