Tunisia sukuk to kick-start North Africa Islamic finance market

24 February 2014

Debut Islamic bond will set precedent for region

Tunisia’s plans to raise a $500m sukuk (Islamic bond) this year is expected to encourage the wider development of Islamic finance in North Africa.

“If Tunisia’s sukuk proves to be a success and attracts investors from the Middle East, then most probably other countries in North Africa would look seriously at this avenue,” Mohamed Damak, primary credit analyst at US ratings agency Standard & Poor’s (S&P), tells MEED.

The Central Bank of Tunisia confirmed its plans to issue its debut sukuk along with about $2bn in foreign bonds in early February. It is planning to use guarantees from the US Agency for International Development (Usaid) and Japan Bank of International Cooperation (JBIC) to support the conventional bond issuances.

Currently, North Africa’s Islamic finance market is highly underdeveloped, with countries having just two or three banks providing sharia-compliant financing products.

Since the political uprisings in 2011, the region’s governments have been encouraging the growth of the Islamic finance market.

In late 2013, Egypt and Tunisia introduced a law allowing the issuance of sukuks, while Morocco has approved a regulatory framework allowing the development of an Islamic finance industry.

North African governments hope Islamic finance will plug the gap in the financing requirements to support planned infrastructure projects. In the wake of the unrest, many conventional Western lenders reduced or stopped their activities in the region and multilateral organisations are unable to provide all the funding.

The success of Tunisia’s sukuk will depend on attracting enough Islamic finance investors.

“The big question in North Africa, now that the regulatory environment is in place, is whether Tunisia will be able to tap an investor base that would not invest in conventional finance products,” says Damak.

He adds that the growth of a successful Islamic finance market in North Africa will also depend on banks pricing their products correctly.

“In this part of the world, price competition is quite significant among local banks,” he says.

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