Islamic Finance in Sub-Saharan Africa: Status and Prospects

This paper aims to survey the current state of Islamic Finance in Sub-Saharan Africa (SSA) and highlights some strategies or factors for its development. It examines the potential of Islamic finance in the region and what lies ahead for countries that wish to introduce similar financial activities and the related policy issues. The paper suggests that several features make Islamic finance instruments relevant to Sub-Saharan countries and the development of Islamic finance could usefully complement countries’ efforts to deepen their conventional financial systems. Key findings include:

• Strengthening accounting, auditing, and disclosure standards for Islamic financial institutions and their counterparties, supported by adequate governance arrangements, enhances financial reporting and facilitates monitoring and assessment of Islamic financial institutions;
• Islamic finance is a complex industry undergoing rapid product innovation but the number of people familiar with Islamic finance mechanisms is very small, highlighting the importance of building technical knowledge and skills;
• Implementation of Islamic Financial Services Board (IFSB) prudential standards is important for harmonization and to enhance the soundness of Islamic financial services;
• Tax systems must not discriminate against the financial structuring required by Islamic finance with its emphasis on contracts, transactions, and unwinding of positions.