Islamic Finance in Africa: Current Penetration

Abstract

As highlighted in the introduction, there are many reasons for the success of Islamic finance in Africa, among which the fact that half of Africa’s one billion population is Muslim and that there is a high percentage of unbanked—especially among those who demand a Sharī’ah-compliant financial system. However, the industry is far from reaching its real potential. Moreover, there is growing support from regulators and political leaders across the continent for greater trade with the Muslim world, for which Islamic finance is increasingly recognised as an important facilitating tool. At the same time, Islamic finance will help attract deposits from new customers and boost the banking industry throughout Africa. Africa is home to one billion people, 41 % of whom are under the age of 15, with 52 cities with at least one million inhabitants, a mobile phone penetration of approximately 50 %, over 300 million people now classified as “middle class” (up 27 % from 2000), and with 60 % of the world’s arable land that has yet to be cultivated. It possesses approximately 10 % of the world’s oil reserves, 40 % of gold reserves, and 80–90 % of chromium and platinum group metals. Average inflation during the 2000s was 8 %, down from 22 % in the 1990s. According to the International Monetary Fund (IMF), inflation has moderated from 10 % at the end of 2011 to less than 8 % at the end of 2012. Average government debt as a percentage of GDP was 59 % in the 2000s, compared to 81.9 % in the 1990s. Such statistics have encouraged giant financial institutions to explore opportunities in many African countries, based on their belief that “Islamic banking will be good for the African economy.”