“It’s almost like Islamic fintech and the financially-excluded Muslim population doesn’t exist,” says Wahida, founder of the Islamic Fintech Hub of Sub Saharan Africa in Mombasa, Kenya.
Within the next 20 years, sub-Saharan Africa will overtake the Middle East and North Africa to become the region with the world’s second-largest Muslim population behind the Asia-Pacific, according to Pew Research. It is forecasted that the Muslim proportion of the population of sub-Saharan Africa will increase to 27% by 2060, from 16% in 2015.
Regulatory hurdles have impeded the emergence of distinctively Islamic financial services to serve that growing demand. Issues which have delayed the emergence of Islamic ‘challenger’ banks in sub-Saharan Africa include high capital requirements, lengthy application processes and lack of open banking legislation that obliges banks to share customer data with third party providers, Wahida says.
She calls for:
- proactive regulation which provides guidelines for Islamic fintech and facilitates access to funding.
- regulatory sandboxes that enable Islamic fintech start-ups to test their technologies in the marketplace while ensuring sufficient consumer protection.
- creation of Islamic fintech units and national Sharia advisory boards within central banks.
Prohibition of interest is one of the main differences between Islamic and non-Islamic finance. An Islamic alternative to interest-bearing bonds is Sukuk. Investors in Sukuk financial certificates get part ownership of the issuer’s assets until maturity, and receive their share of the revenue generated by the underlying assets.
Sukuk instruments have a role to play in financing Africa’s renewable energy sector, Wahida says. The challenge lies in the fact that ‘Green Sukuk’ is a relatively new financing instrument, so there will be a need to build familiarity with its issuance and reporting requirements. “Regulations will be needed to strengthen the issuance of Green Sukuk and the implementation of green projects.”
Obstacles facing Islamic fintech in Africa include lack of access to financing and internationally recognised sharia advisory services, restricted women’s participation and confinement to the tried and tested North Africa, Wahida says. She also points to “fear of the word Sharia” which may deter some investors.
- Wahida founded the hub in 2019 because she saw a need for an incubator that nurtures Islamic fintech ventures.
- The hub works with Islamic fintech start-ups in Kenya and Gambia.
- The start-ups are developing apps and platforms in the fields including agribusiness, e-commerce and Sharia-compliant digital lending.
- The hub’s work includes provision of company registration, access to an open application programming interface (API) platform and regulatory compliance as well as Sharia certification services.
- It aims to build a campus at Konza Techno City which is under construction south of Nairobi.
According to Moody’s, sub-Saharan Africa has around 16% of the world’s Muslim population, but its shariah compliant assets account for only 1% of global Islamic banking assets. Moody’s predicts growth in Islamic finance in sub-Saharan countries such as South Africa, Nigeria and Senegal.
Wahida argues that Nigeria is sub-Saharan Africa’s most promising candidate. The country is home to the continent’s largest Muslim population and consumer market, she says.
- Nigerian legislation in 1991 provided the basis for the establishment of Islamic banking.
- Habib Bank has operated an Islamic banking window since 1992.
- Nigeria’s central bank joined the Islamic Financial Services Board (IFSB) in 2009 and set up a non-interest banking unit in 2010.
- Jaiz Bank in 2011 was licensed to operate as a fully fledged Islamic bank, the first of its kind in Nigeria.
- Nigeria also has guidelines for the Takaful insurance industry and an advisory body that oversees Islamic banking.
- The country is also home to “one of the most thriving tech hubs in sub-Saharan Africa,” Wahida says.
Sub-Saharan Africa has major potential for Islamic finance if distinctive products can be designed and delivered.
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