Africa is the second largest land mass in the world, three times larger than Europe and twenty four percent larger than North America. This sheer scale is often quoted as an opportunity for many industries to grow in Africa. Africa is home to an under-banked and growing middle class where 53% of the population is Muslim suggesting a huge market for Shari'ah compliant wealth products. Given national boundaries and demographics, the development of Shari'ah compliant investments and wealth products has varied across Africa.  Western Africa has a majority Muslim population with Nigeria, Senegal, Guinea, Mali and Niger the largest.  Tanzania, Ethiopia and Kenya are the big prospective markets in the East while on the Mediterranean Egypt, Morocco and Algeria standout. 

Kenya is East Africa's biggest economy and the Capital Market Authority (CMA) has developed its Capital Market Master Plan which received a boost in Oct 2015 to be fast tracked.

The goal is to make Nairobi a financial hub including a National Shari'ah Advisory Board to support the uptake of the participatory financing market products and services by setting out standards for all Shari'ah products designed in Kenya.

Kenya has two fully fledged Islamic banks, Gulf African Bank and First Community Bank as well as the Islamic windows of several conventional banks, two Islamic collective investment schemes from Genghis Capital and FCB Capital as well as a Takaful operation in Takaful Insurance of Africa which opened in 2011. Standard Chartered Saadiq, the Islamic banking arm of the group, opened its first Africa office and seventh Islamic banking centre, in Kenya.  Nowadays Kenya is a model of the breadth of Islamic wealth services that can be found in one market. Many of these firms are still young though the growing number of standalone Islamic providers' shows commercial success can be achieved.  Gulf African Bank started operations as a commercial bank in January 2008 where the Central Bank of Kenya granted the country's first fully-fledged commercial banking license as a dedicated Islamic bank. 

Gulf African Bank shareholders include Istithmar World, The Eastern and Southern African Trade and Development Bank (PTA Bank), BMI (Bahrain), Gulf Cap group and investors from Saudi Arabia. In the eight years of operation the business has grown and now has a balance sheet of Kenyan Shs23bn (USD 226m) as of March 2016. 

First Community Bank started operations a few months after Gulf African Bank and as at the end of 2015 had a balance sheet of Kenyan Shs 14.5bn (USD 143m). These banks are less than a tenth of size of KCB Bank Kenya which as Kenya's largest bank has assets of Kenyan Shs 366bn (USD 3.7bn) so there remains more to do to take a larger share of the banking population in Kenya.  Genghis Capital launched the first Kenyan Shari'ah compliant fund in March 2013. 

The fund was initially focused on local assets including Murabaha contracts and equities; overseas assets have increased to add diversification over time using leading offshore managers to provide CapGen with instant diversification.

Genghis worked with the Capital Markets Authority who granted the fund special exemption to the standard asset allocation rules for example the offshore cap is usually 10% and can be as high as 30% for the Iman Fund. When the fund was established the choice of eligible assets could lead to concentration and as the first Shari'a compliant fund available to retail investors in Kenya it was important to reduce risk. Such practical considerations show that the fortunes of Islamic wealth products are linked to the broader capital market framework in the country it operates. 

On the western side of the continent, Nigeria's banking sector has been the fastest growing in Africa; it is also home to the largest Muslim population in Sub-Saharan Africa though one of the least developed 

for Islamic wealth and investment products.  Jaiz Bank is the only fully fledged Islamic bank in Nigeria opening with three branches in 2012 and now has been granted a national license by the regulator. Stanbic IBTC, a subsidiary to South Africa's Standard Bank, operates an Islamic window. Lotus Capital is a full-service, ethical investment management boutique specializing in Shari'a compliant Asset Management, Private Wealth Management and Financial Advice. Nigeria's opportunity is certainly one of the largest though no clear practice has established to service the potential demand but it will certainly be an interesting market to follow. 

South Africa with a low Muslim population but a sophisticated financial services sector has one of the most developed Shari'ah compliant mutual fund markets with a range of dedicated Shari'ah compliant boutiques and mainstream offering investments to clients. Though South Africa's Muslim population is 1.5% of the population according to Pew Research Centre it is often credited with involvement in 10% of South Africa's economic activity. The asset management market in South Africa has over 10 unit trust and pension funds available locally from boutiques like Oasis Crescent, Element Investment Managers, Kagiso Asset Management and 27Four Investment Managers through to mainstream groups Old Mutual, Stanlib and Symmetry Multi-Manager. The independent adviser community is particularly active recommending Shari'ah funds to clients whilst Al Baraka Bank, based in Durban, as the only fully fledged Islamic bank in South Africa offers its clients investment from the above groups. 

The National Treasury in South Africa issued a Sukuk in November 2014. The South African government issued a benchmark sized $500m and as an Islamic instrument attracted capital from the Middle East helping to diversify their investor base. Senegal was the first issuer of a Sukuk in Africa, which was not widely held in the international market as it was locally issued, albeit the Senegal Franc is linked to the Euro. Cote d'Ivoire, Niger, and Nigeria made their debuts in 2015 each respectively upward of US$200 million. Sukuk issuances are likely from other African governments to help finance infrastructure projects. 

Ugandan lawmakers passed the Financial Institutions (Amendment) Bill 2015 making way for the issuance of Sukuk, whilst in Kenya some revisions are needed to bank legislation to allow Sukuk issuance though Kenya has been actively developing the framework for Islamic finance with Qatar institutions.

Sukuk issuance is structurally beneficial for borrowers and also allows African investors to access a new Shari'ah compliant asset. Shari'ah compliant equity funds outnumber the availability of lower risk bond and income funds so a liquid Sukuk market would open the door to new wealth products to South African Muslim investors. 

South Africa, Kenya and Nigeria all provide examples of Shari'ah compliant investments and wealth products. Some of these groups have grown outside their local markets into international locations to continue their development. As wealth spreads across a wider demographic in Africa the local market will experience big growth and more operators are likely to emerge. Additionally we are now seeing international providers looking to Africa. Local, foreign and new firms will be looking to develop this opportunity in the years to come. 

By: Lawrie Chandler
Lawrie Chandler is a director and chairman of the investment committee with Edale Group. Edale is a wealth boutique advising financial institutions and wealthy individuals. Edale conducts research and maintains a proprietary database on Shariah Compliant Funds and Exchange Traded Funds. Lawrie Chandler has 15 years fund selection and investment research experience including acting as product specialist for clients. He began his career began as an equity analyst and developed into front office involving planning, launching and managing key business functions. He has worked on broad range of assignments in the UK and offshore investment industry with secondments to South Africa, Guernsey and Middle East. He is also a Director of the Luxembourg domiciled Salam Pax SICAV. 

© Business Islamica 2016