Moody’s, a foremost credit ratings agency says it expects robust issuance in African sukuks over the next 18 months as more African sovereigns seek to diversify their funding base.
According to a report from the agency, Africa’s Islamic banks will continue to perform well and African sukuk issuance will keep expanding steadily to fund sovereigns and financial institutions.
This will be supported by global investors’ growing comfort with Islamic instruments, Moody’s Investors Service said in the report.
In October and December last year, the governments of Nigeria and Morocco issued $327 million and $105 million of sukuk, respectively.
Egypt, Algeria and Sudan have recently expressed interest in issuing sukuk.
Also, in April, Egypt set up a Shariah supervisory committee to oversee sukuk issuance.
Akin Majekodunmi, VP-senior credit officer at Moody’s said: “Islamic bank performance in large African banking systems such as South Africa and Nigeria should remain robust over the next 12 to 18 months.”
He noted that Africa’s large Muslim population, which is predominantly unbanked or under-served, will continue to provide a solid foundation in which Islamic banking assets, and thus earnings, can grow rapidly.
However, the rating agency, stated that structural constraints that have prevented sukuk markets from developing even faster remain.
These constraints include the legislative complexity and time associated with sukuk issuance, especially for new issuers, and the need to identify physical collateral (for example, infrastructure projects) to support the sukuk structure, noted Moody’s.