The Role of Sukuk in Islamic Capital Markets
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3.3.3 AFRICAN COUNTRIES
In the African region, The Gambia, Sudan, Nigeria, Senegal, South Africa, Togo and Ivory Coast
have successfully issued sukuk. Sukuk as an alternative tool of financing is gaining traction and
greater awareness in the African region, where requirements for infrastructure funding are
high. According to the World Bank, the continent’s infrastructure gap needs a significant
amount of investment to the tune of USD93.0 billion (International Financial Law Review,
2015). Governments all over the world generally finance their development and infrastructure
budgets through tax and other revenue (including by borrowing from the capital markets
through the issuance of various types of financial papers). Given the persistent commodity
price slump affecting extractive industries, African governments are now receiving
significantly less income from their traditional base of natural resources. As a result,
alternative sources of finance are required to fund the capital projects necessary to spur
economic growth and diversify their economies.
The Gambia’s salam sukuk have predominantly been used by the Central Bank of Gambia for
short-term liquidity management. For other selected African countries, since sukuk issuance
proceeds have been used for infrastructure-related funding, the complementary sukuk
principle has been ijarah. The reasons given by market players include the simplistic features
in terms of flexibility, tradability and suitability in funding construction projects. Unlike the
murabahah structure, the ijarah structure enables secondary trading of the sukuk instrument
on an exchange, which in turn helps increase investors’ participation in the transaction.
Additionally, the ijarah contract is inherently designed to produce periodic rental payments,
which automatically act as coupon payments to sukuk investors. Chart 3.5 delineates the main
Shariah contracts used by selected African countries in their sovereign sukuk structures.
Chart 3.5: Selected African Sovereign Issuances by Shariah Contracts (2013-June 2017)
Source: Eikon-Thomson Reuters