Africa is Islamic banking’s new frontier

Several African countries are vying to become regional hubs for Islamic finance. Kenya has three Islamic banks, as well as an Islamic insurance company. A further five conventional banks offer sharia-compliant products through dedicated Islamic 'windows'. Kenya also hopes to issue a sovereign sukuk to raise funds for infrastructure and help foster an Islamic capital market. Nigeria, which has one Islamic bank, plans to do the same. South Africa, Senegal, Côte d’Ivoire and Togo have already issued sovereign sukuk. In north Africa Islamic finance has long been held back by a fear that it means introducing sharia law through the back door. South of the Sahara the problems are more structural. According to Thorsten Beck of City University in London, Islamic banks’ sources of funds are mainly short-term, making it hard for them to offer long-term financing. Khaled Al-Aboodi of the Islamic Development Bank says regulators don’t yet know how to deal with the sector. In Kenya Islamic transactions still face double taxation, which makes it hard to compete.