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Potential of Islamic Finance in Africa

In: Business and Management

Submitted By WaleedParacha
Words 630
Pages 3
The potential of Islamic infrastructure finance in Africa
Summary:

Lack of funding for infrastructure has been identified as one of the key hurdles hindering African infrastructure development. Africa ranks on the bottom of developing regions in access to infrastructure services and the continent’s total infrastructure financing needs amounts to a staggering circa. USD 93 billion per year until 2020 (Africa Infrastructure Country Diagnostic, 2009). Five years have since lapsed since these estimates were published and the gap continues to widen.

Islamic financial institutions that offer Islamic financial products are required by Sharia Law to establish a Shariah Supervisory Board made of Islamic jurists known as fuqha.

Over the years, Islamic finance has become an important source of capital for large infrastructure projects. It is estimated that global Islamic assets stood at USD1.6 trillion as of December 2011 (Islamic Development Bank, 2011).

In order to attract Islamic Infrastructure funds, a financier is obliged to find ways of overcoming challenges associated with Islamic Finance through innovation (McMillen, 2011).

Sharia law prohibits Islamic financial institutions from leveraging their balance sheets through the use of debt for liquidity purposes. Islamic banks use retail banking deposits from devoted Muslims and tend to avoid the bond markets.

High risks associated with Islamic financing and infrastructure finance makes Islamic financing uncompetitive in general. There are high levels of risks emanating from the ownership of asset especially with the ijara structure.

The inconsistencies amongst Sharia Committees of Islamic Finance Institutions regarding Islamic Finance Structures aggravate the lack of accounting and taxation practices between the Islamic and western worlds. This tends to increase the uncertainty regarding deal...

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