Islamic finance could reach $3.7 trillion in 2024, an opportunity for Africa

Jan 14, 2021 | Ecofin Agency

Islamic finance assets could reach $3.7 trillion by 2024, according to an estimate by the Islamic Development Finance Corporation and Refinitiv, the data arm of Reuters Group.

By the end of 2019, the global value of these assets governed by the economic laws of the Muslim religion reached $2.875 trillion, 69% of which is concentrated in the banking sector. From 2012 to 2019, Islamic financial assets jumped by 63.25%.

In addition to banks, the sector relies on bonds (debt securities) issued according to Islamic rules. These debt securities absorb 16% of the total assets. But there is a growth opportunity in Islamic investment funds. They account for only 5% of total assets of $140 billion. The takaful (Islamic insurance) sector is the last one with a share of 3% for only $51 billion of assets.

At the end of 2019, Islamic finance activities were recorded in about fifty countries, particularly in the Middle East and Africa, where there is regulation on financial products that comply with it. The sector is increasingly covered in the media. Nearly 13,000 news stories about Islamic finance were recorded in 2019.

This evolution can be seen as an opportunity for Africa, which is struggling to channel sufficient financial resources into Western or Asian financial markets. According to the legal consulting firm White & Case, the black continent is predisposed to accommodate this financing model.

“Africa, in particular, is a region in which Islamic finance could and, indeed, should thrive. The continent has a Muslim population of approximately 636 million, representing almost 53 percent of Africans,” the firm said in a September 2018 review.

However, the margin for growth remains significant. In a report issued on Nov 2, 2020, rating agency Moody’s said Islamic banking has made little progress in Africa despite the continent's large Muslim population. The agency said Sub-Saharan Africa has about 16% of the world's Muslim population, but its Sharia-compliant banking assets represent only about 1% of global Islamic banking assets.

Challenges for Islamic finance in Africa include low levels of banking inclusion, low public awareness, and limited domestic savings and - until recently - little government interest. But things are still changing, according to Moody's. In countries such as Senegal, Morocco, Sudan, Nigeria, Egypt and South Africa, a highly Islamized population is an opportunity for growth.

Source: Ecofin Agency