The New Hubs of Africa’s Islamic Finance Movement

March 7, 2012

Recently the Kuwait Finance House (KFH) released some interesting research titled “Islamic Banking in Africa,” which discusses the obstacles Islamic Finance faces on the continent.  While I agree with many of the conclusions made in the article, particularly related to North Africa, I was left wondering about the rest of the continent.

Although Northern Africa has the highest percentage of Muslims within the population, Western Africa has the largest Muslim population in absolute terms.  The article makes a common argument that Nigeria will serve as the primary hub for Islamic banking in the region.  This makes intuitive sense, as Nigerian banks already have a broad footprint across the region and are far better capitalized than other regional banks. 

What’s less clear is how Islamic finance will grow in Eastern and Southern Africa.  KFH argues that South African banks will drive growth in the region.  While South Africa registered its first Islamic bank in 1989, there are currently only 3 Islamic banks in the country and Muslims represent only 2.3% of the country’s total population.  Compared to this, Muslim communities range from approximately 11% of the total population in Kenya and 20% in Mozambique to greater than 35% in Ethiopia and Tanzania.  And in those countries bordering North Africa, Muslims make up greater than 70% of the total population.

I think it’s too early to predict whether South Africa’s banks will be successful in convincing Muslim populations in the bottom half of the continent to invest in their Islamic finance offerings.  While South African banks have the capitalization, stability and regulatory discipline to be successful, in many of the countries with large Muslim populations banking remains a local concern.  This is in part because distribution is still a problem – only the concentrated wealth is sufficiently mobile to cross borders.  It seems equally likely that Tanzania or Kenya could arise as regional Islamic finance hubs. 

How do you see Islamic finance growing in Western, Eastern and Southern Africa?

 – Markus Allard, PORTIA Regional Business Development Manager

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