Sukuk recognition rising in Africa

4 of the 5 largest African economies have resorted to elevating funds from the worldwide monetary markets by way of sukuk issuance in the previous couple of weeks. The query is whether or not such issuances at the moment are turning into an everyday function of the mainstream public debt elevating mixture of debt administration workplaces (DMOs) at a number of African ministries of finance. 

A sukuk is an Islamic monetary belief certificates, equal to a bond in typical finance, that complies with Islamic spiritual legislation generally generally known as sharia. Because the conventional Western interest-paying bond construction will not be permissible, the issuer of a sukuk basically sells an investor group a certificates, after which makes use of the proceeds to buy an asset, repaying traders with funds accruing from the acquisition.

Sovereign debt is the bane of many international locations, no matter financial standing, and carries the burden of exorbitant debt servicing and finance prices, particularly for creating international locations, due to exaggerated threat perceptions by score businesses. Africa is not any exception on this respect.

However the playbook of African sukuk issuance is altering and assuming a ‘Made in Africa’ ingredient, which can but function a mannequin for different equal issuers elsewhere. On the finish of June 2025, Egypt as an illustration raised $1bn by way of the issuance of a leasing sukuk with a tenor of three years, priced at a fee of return of seven.875% every year, payable semi-annually in arrears. 

What is exclusive is that the whole issuance was underwritten by one financial institution, Kuwait Finance Home (KFH), by way of a personal placement, which additionally saves on prices related to investor roadshows and calls, rankings and bourse listings. KFH is not any abnormal financial institution. It is without doubt one of the largest when it comes to belongings underneath administration and the second oldest Islamic financial institution on the planet, established in 1977. Previous to this, Egypt raised $1.5bn by way of an analogous leasing sukuk in February 2023. 

In response to the Public Debt Administration Unit on the Egyptian Ministry of Finance, the plan is to concern a number of additional sukuk tranches over the following three years, underneath its $5bn Belief Certificates Issuance Programme. 

Egypt’s Finance Minister, Ahmed Kouchouk, confused that regardless of the current financial challenges associated to the present conflicts within the Center East area, the sukuk issuance additionally comes at a time of notable enchancment within the Egyptian economic system. The proceeds from the issuance will probably be used to finance gaps within the 2024/25 nationwide funds. The Ministry of Finance affirmed its dedication to lowering the exterior debt for funds our bodies by round $1bn to $2bn this 12 months. 

Whereas South Africa and Egypt have tapped the US greenback market with their debut sukuks prior to now, the Federal Authorities of Nigeria (FGN), regardless of common issuances within the typical Eurobond market, has ring-fenced its sukuk issuances within the naira-denominated market and they’re completely linked to the constructing and rehabilitation of 44 arterial roads and bridges throughout the six geopolitical zones of the nation and the Federal Capital Territory.

In Could 2025, the Nigerian Debt Administration Workplace (DMO) issued its seventh sukuk so far, elevating ₦300bn ($190m) by way of a 7-year leasing sukuk, priced at a set rental fee of 19.75% every year, payable semi-annually in arrears. The transaction firmly entrenches the debt instrument within the public fundraising playbook of the Ministry of Finance. 

The prices related to sukuk and bond issuances are straight linked to issuance regularity, the presence of a yield curve, the success of the DMO in diversifying its fundraising technique and investor base, and advancing the reason for entry to and monetary inclusion within the nation’s capital market. A latest report by Fitch Scores confirmed a robust correlation between the pricing and yields of typical bonds and sukuk. 

What was exceptional about this seventh FGN sukuk issuance is that it was oversubscribed by 735%, reaching an unprecedented subscription degree of over ₦2.205trn ($1.41bn). 

“That is clear proof of the massive investor-appetite for the moral instrument launched by the DMO in 2017, as an revolutionary technique to broaden the nation’s investor-base and supply alternatives for all Nigerians to take part within the actions of the capital market. 

“An evaluation of the subscriptions confirmed that subscribers minimize throughout varied segments together with retail, non-interest banks and monetary establishments, typical banks, pension funds, and asset managers,” said the DMO. 

So far, the DMO has raised ₦1,392.5bn ($892.46m) by way of its seven sukuk issuances. “The elevating of funds by way of sukuk issuances to finance infrastructure tasks,” says the DMO, “aligns with our President’s Renewed Hope Agenda, for which infrastructure growth is a key pillar. The DMO stays dedicated to offering secure and liquid funding merchandise to the general public and supporting the FGN’s growth plans.”

Social and monetary inclusion

The success of the FGN’s sukuk technique can also be based mostly on its social and monetary inclusion and sustainability objectives, a said precedence of the DMO’s Director Normal, Endurance Oniha. 

This newest issuance concerned a variety of Nigerian monetary establishments, thus increasing the sukuk monetary engineering worth chain, and was collectively organized by Greenwich Service provider Financial institution Ltd; Stanbic IBTC Capital Ltd, a member of South Africa’s Normal Financial institution Group; and Vetiva Capital Administration Ltd. 

It additionally has a robust retail subscription from abnormal Nigerians, thus democratising entry to the capital market, backed by the sovereign assure of the FGN, thus giving additional consolation to abnormal traders. 

The DMO’s technique of instigating wider public consciousness campaigns for encouraging funding in sukuk is paying off – judging by the 735% oversubscription. Even for institutional traders, the DMO organises an everyday Buyers’ Assembly in Abuja for the Sovereign Sukuk Issuances, because it does for Eurobond choices. 

The financial influence of the issuance of sukuks is clear within the improved highway infrastructure and well timed completion of designated tasks. The DMO says there was an enchancment in highway security, journey instances and sooner motion of products between main industrial cities. 

The sukuk certificates are listed and traded on the Nigerian Change Restricted and FMDQ Securities Change Restricted, doubtlessly releasing up additional liquidity for tasks. 

Regardless of the evolving outlook for Nigerian sukuk origination, its potential is far greater. The credit score threat credentials of Nigerian sukuk choices will solely be examined when the DMO points rated debt papers within the worldwide US greenback or euro market, if solely to determine worldwide investor urge for food for such papers and to diversify the sovereign’s international investor base.  

There’s additionally the problem of tips on how to upscale sukuk issuances to crowd in personal sector involvement and to get extra Nigerian states, businesses and corporates, just like the Dangote Group, to lift funds by way of sukuk choices, as an alternative choice to utilizing usually costlier typical financial institution finance, thus including depth and selection to the native capital market.

Algeria’s maiden sukuk

Algeria is one other market that’s on the cusp of issuing its maiden sukuk. Regardless of being a founder member of the supranational Islamic Improvement Financial institution (IsDB), with its 27 African member states, it’s a relative newcomer to the Islamic finance and capital market. 

The federal government of President Abdelmadjid Tebboune hosted the 2025 IsDB Group Annual Conferences in Algiers in Could 2025, which appears to be a driver of a new-found connectivity with the estimated $5trn world Islamic finance business.

A proposed debut sovereign sukuk has been authorized underneath the 2025 Finance Legislation and the Ministry of Finance’s Sukuk Issuance Framework. Banks are within the technique of being mandated to handle the transaction, which is prone to be denominated within the native forex, the Algerian dinar, DZD. The proceeds from the issuance will probably be used to finance tasks and infrastructure. 

The plan is to go to the marketplace for the debut sukuk in Q3 2025 to enrich the funding wants of the 2025 Nationwide Price range, aiming to draw a wider base of international traders by diversification of the supply of funding and investor base, and to spice up confidence within the native capital market.

In response to Zohir Laïche, CEO of CAGEX (the State-owned Algerian Export Insurance coverage and Assure Firm), “Islamic finance is steadily rising in Algeria, regardless of the nation’s late arrival on the world degree. The federal government has taken steps to develop the business, together with launching Islamic banking merchandise and exploring various financing mechanisms similar to sukuk. 

“Nevertheless, structured progress and regulatory developments are nonetheless wanted. Because the nation explores syndicated Murabaha constructions and sukuk for elevating capital, we see a chance for insurance coverage mechanisms (similar to credit score and political threat insurance coverage) to enrich these initiatives, thereby strengthening investor confidence and monetary stability.”

Neighbouring Morocco can also be set to hitch the sukuk issuance development. In July, Reuters, quoting the Central Financial institution Governor Abdellatif Jouahri, confirmed that the Kingdom is within the technique of issuing its second sovereign sukuk within the second half of 2025. Morocco issued its debut 5-year sukuk in 2018 which matured in 2023 and which raised 1bn dirhams (about $110m) within the course of.