Africa to become the next major issuer of sukuk

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Inscription of the Indonesian sukuk on the Nasdaq Dubai. Sukuk issuance in Indonesia rose nearly 60% in the first half of 2021, largely due to rising government issuance.
Image Credit: Nasdaq Dubai

Dubai: The volume of Islamic bond (sukuk) issuance is expected to increase over the next few years as Africa joins other key Islamic markets such as the GCC, Turkey, Malaysia and Indonesia, according to the Moody’s rating agency.

“We expect sukuk issuance to proliferate over the next decade as more African governments tackle the complex regulatory and legislative adjustments needed to enable them,” said Peter Mushangwe, analyst at Moody’s .

The massive amounts of funding needed to finance the continent’s infrastructure gap will be a key factor. The issuance of sukuk in Africa represents less than half a percent of the global sukuk outstanding.

Decrease in GCC emissions

After a record year of issuance in 2020 dominated by GCC sovereigns at $ 205 billion, in 2021 global sukuk issuance is expected to consolidate in a range of $ 190 billion to $ 200 billion according to Moody’s estimates.

Sukuk issuance in the GCC fell 19% in the first half to $ 35.3 billion due to a significant decline in sovereign issuance, which was only partially offset by higher corporate volumes. The sharp year-over-year decline in the first half of the year is attributed to significant increases in oil prices, leading to a decrease in the financing needs of GCC governments.

The rating agency expects further decline in Islamic bond issuance in the GCC in the second half of the year. The rise in oil prices has lowered the gross financing needs of oil-exporting countries compared to 2020. However, new private issuers will partially offset the decline in volumes on the sovereign side.

“In the CCG, we expect emissions to drop in the second half of the year. The rise in oil prices has reduced the gross financing needs of oil-exporting countries compared to 2020, ”said Ashraf Madani, VP-Senior Analyst at Moody’s.

New markets, products

Global sukuk issuance volumes reached $ 101.7 billion in the first half of 2021, up 3% from $ 99.1 billion in the same period of 2020. This increase is due increased activity in Southeast Asia, where volumes increased 22% to $ 53.9 billion.

Moody’s sukuk issuance is expected to remain stable at around $ 90-100 billion in the second half of 2021, due to our expectation that the issuance will remain strong in Southeast Asia.

Malaysia remains the main contributor with emissions up 15% to $ 37.5 billion. Issuing activity in Indonesia increased by almost 60%, largely due to increased public issuance.

While the rating agency expects activity among GCC countries to remain subdued, its forecast shows the sukuk market to maintain its long-term growth trend, supported by new entrants, low penetration and new innovative Islamic products, such as green and sustainable sukuk.

There has been a constant flow of new entrants in recent years. Saudi Aramco and the government of Maldives launched their first issues in the first half of this year. Saudi Aramco issued a total of $ 6 billion in three tranches over three, five and ten years.

Sovereign domination

Historically, governments have dominated sukuk issuance and analysts expect this to continue as governments diversify their funding base.

On the African continent, Moody’s sees West African countries leading the way in sukuk issues. Greater sukuk issuance will promote greater public awareness of Islamic finance.

Egypt, Morocco, Sudan, Senegal and Nigeria stand out as the best placed for the growth of Islamic finance. They have large Muslim populations, have made or are in the process of making the significant legal and regulatory changes required for Sharia-compliant finance, and most have a history of issuing sukuk. Egypt has indicated that it will likely release its first sukuk in its 2021-2022 fiscal year.

“Islamic banking has enormous development potential in Africa, whose Muslim population was estimated at around 446 million in 2020. Egypt, Morocco, Sudan, Nigeria and Senegal will lead the growth, aided by their banking structures. existing regulation and supervision or promote Islamic banking, ”Mushangwe said.

As African countries begin to put in place Sharia-compliant laws and regulations, constraints remain. Islamic banking has made little headway in Africa despite the continent’s large Muslim population. Africa has nearly a quarter of the world’s Muslims, but its Sharia-compliant bank assets only account for about 2% of global Islamic banking assets.


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