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MAHMOOD SANGLAY
Across Nigeria, motorists travel on roads financed through sukuk, with capital tied to identifiable public assets. This link between money and infrastructure is moving Islamic finance from a faith-based niche to an African development tool.
On a conventional government balance sheet, borrowing can look like an invisible stack of promises. A sukuk certificate is easier to picture: investors acquire beneficial interests linked to an asset or its use, such as a road, school, solar plant or airport, and earn returns generated under a Shariah-compliant contract.
That distinction matters as African governments confront expensive capital and immense development needs. The International Monetary Fund (IMF) said in April 2026 that sub-Saharan Africa’s median public debt fell from 57.2% of gross domestic product in 2024 to 53.1% in 2025. Yet borrowing remains costly: the median country issued domestic debt at an average interest rate of 8.8% in 2024, while debt service continues to squeeze essential spending.
Islamic finance offers another channel, although not a magic escape from debt. It prohibits riba, or interest, excessive uncertainty and financing for harmful activities. Transactions should be connected to assets, trade, leasing or risk-sharing. These disciplines can improve transparency and diversify investors, but poor project selection, currency exposure and weak governance can still leave a country overburdened.
The global pool is substantial. The Islamic Financial Services Board’s 2026 stability report valued Islamic banking, outstanding sukuk, Islamic funds and takaful assets at $4.4 trillion in 2025, up 13.4% year on year. Sukuk outstanding exceeded $1 trillion. Sub-Saharan Africa, however, accounted for just $30.79 billion, or 0.7%, revealing both the frontier opportunity and how far the region trails the Gulf and East Asia. For governments, that small share means the immediate task is not replication of Gulf markets, but building institutions suited to African economic realities.
The sovereign sukuk boom
Nigeria has turned sukuk into the clearest African demonstration of money meeting concrete. Since its first federal issue in 2017, proceeds have been ring-fenced for road construction and rehabilitation across the country’s six geopolitical zones. Instead of asking citizens to trust that generic borrowing will eventually improve their lives, the structure identifies projects and links payments to leased road assets.
Demand has been striking. In May 2025, Nigeria’s Debt Management Office reported that its seventh sovereign sukuk offer attracted subscriptions of N2,205 trillion. The depth of demand indicates that sukuk can mobilise savings from Islamic investors while also attracting conventional pension funds, banks and retail buyers seeking predictable returns and asset-linked exposure.
Other sovereigns have widened the route. South Africa became the first sovereign in continental Africa to enter the international sukuk market in 2014. In November 2023, National Treasury returned with its first rand-denominated domestic sukuk, raising about R20.4 billion across four maturities. Its participation is important precisely because South Africa is not Muslim-majority: sukuk was used as a funding instrument, not a religious concession.
Egypt issued its first sovereign sukuk, worth $1.5 billion, in February 2023; bids reached $6.1 billion. It returned in October 2025 with a $1.5 billion dual-tranche international issue that drew orders above $9 billion, and followed with its first local-currency sovereign sukuk in November. Benin’s $500 million debut in January 2026 extended the map into francophone West Africa.
These issues do not automatically cost less than conventional bonds. They remain sovereign obligations and investors price credit, currency and political risk. Their advantage is diversification: governments can reach Islamic liquidity, create local benchmarks and develop markets for infrastructure, green energy and housing finance.
Rewriting the regulatory playbook
Islamic finance cannot scale if the law treats every asset transfer as a separate taxable sale. A murabaha home-finance transaction, for example, may require a financier to buy a property before selling it to the customer at an agreed profit. Without tax neutrality, transfer duties or value-added tax can be imposed twice, making the product uncompetitive with an interest-bearing mortgage.
Regulatory reform therefore matters as much as investor appetite. South Africa changed tax rules more than a decade ago to place specified Islamic arrangements on a comparable footing with conventional finance. Morocco authorised its first participatory banks and windows in 2017, then added takaful and sukuk legislation. Kenya has progressively amended its banking legislation and, through the Finance Act, 2017, its tax and public-finance laws to accommodate Islamic products alongside conventional finance.
Uganda shows how political will can open a market. Legal changes enabled the Bank of Uganda to license the country’s first fully Islamic commercial bank in 2023; Salaam Bank began operations in Kampala in March 2024. In May 2025, Uganda also signed an $800 million, three-year financing framework with the Islamic Development Bank for projects including rail, health, transport and energy.
The objective is a dual system with equivalent supervision, taxation, deposit protection and consumer safeguards. Clear rules reduce legal uncertainty for local institutions and give Gulf and Asian investors confidence that contracts will be recognised. But regulators also need independent Shariah governance, trained auditors, liquidity facilities and insolvency rules. A label alone does not guarantee authenticity or prudence.
Fintech meets the inclusion gap
Africa’s digital rails may carry Islamic finance further than bank branches ever could. The World Bank’s Global Findex 2025 shows that 58.2% of adults in sub-Saharan Africa had an account in 2024, meaning 41.8% remained outside formal financial services. About 40% had mobile-money accounts, however, creating a distribution network already familiar to farmers, traders and micro-enterprises.
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The opportunity is not simply to place an Islamic logo on a loan app. Digital onboarding, alternative data and mobile payments can lower the cost of small murabaha purchases, equipment leases, takaful contributions and profit-sharing finance. A farmer could obtain seed or irrigation equipment through an asset-backed sale, repay after harvest through mobile money and build a transaction history without entering a conventional interest-bearing contract.
Early activity shows the range. Egypt’s digital investment platform Bokra arranged a EGP3 billion sukuk in 2025 for Aman Project Finance, linking fintech capability with capital-market funding. In Kenya, Islamic banks and takaful providers increasingly use mobile channels, while Nigeria’s digital non-interest banks and investment platforms are widening access beyond physical branches.
The global Islamic fintech market remains young but fast-moving. The Global Islamic Fintech Report 2025/26 estimates transaction volume at $198 billion in 2024/25 and projects $341 billion by 2029. It also warns that sub-Saharan Africa has limited activity and needs stronger regulation, infrastructure, talent and capital.
Those constraints are decisive. Smartphones do not remove weak connectivity, costly data, fraud, opaque fees or inconsistent Shariah rulings. Nor should automated credit scoring reproduce discrimination against women, rural users or informal businesses. Regulators must require plain-language contracts, data protection, cyber resilience and credible Shariah oversight.
From niche to economic engine
Islamic finance is moving beyond the Gulf, but Africa’s expansion will be judged by outcomes, not issuance totals. The test is whether a sukuk completes a road on time, whether a digital contract gives a small enterprise fair capital, and whether investors can trace funds to productive assets.
Used responsibly, asset-linked finance can broaden the funding base and impose useful discipline: identify the asset, disclose the contract, share relevant risk and exclude exploitative activity. It cannot substitute for fiscal restraint, competent procurement or public accountability. Its real promise is more practical—a transparent bridge between dormant capital and Africa’s visible needs.
