Moody's points to huge potential of Islamic finance

The Islamic finance industry in Africa is set to expand to as much as $235 billion as economic growth accelerates and the continent attracts investments, Moody's Investors Service said.

Islamic banking in Africa is still in its "infancy" with 37 financial institutions providing financial services compliant with Shariah law, Moody's analyst Anouar Hassoune said in a report yesterday.

The Shariah-compliant banking industry was valued at $18 billion at the end of last year, less than 8 percent of the potential market size, Moody's said.

The global Islamic financial market may expand to $2.8 trillion by 2015, from between $750 billion and $1 trillion Currently, according to an estimate by the Kuala Lumpur-based Islamic Financial Services Board.

"The potential value of the Islamic banking and finance market in Africa is huge," Paris-based Hassoune wrote. If the "continent continues to grow at its current pace, which is the fastest in decades, incremental wealth creation will make it easier for the Islamic financial services sector".

Gulf investors betting on the continent's economic expansion have started banks and real estate projects in Africa, where 412 million Muslims live, second only to Asia, which is home to about half of the world's Muslim population of 1.5 billion. Bahrain's Gulf Finance House EC plans to spend $3 billion developing an economic zone in Algeria.

'Not insignificant'

The size of Africa's combined economic production reached $469 billion last year, Hassoune said.

"This is not insignificant, as it is on par with the combined GDP of Saudi Arabia and the United Arab Emirates, two of the dominant economies of the Muslim world," Hassoune said.

Challenges to growth for Islamic financial institutions in Africa include their limited geographic reach, Moody's said. More than half the region's Islamic finance assets are located in Sudan and Egypt holds about one fifth, the rating company said.

Sudan was the third-biggest oil producer in sub-Saharan Africa last year, after Nigeria and Angola. The country may increase output to an average 565,000 barrels a day this year, the International Monetary Fund said on Oct 11, 13 percent more than in 2007.

Shariah, or Islamic law, bans charging of interest as well as investments in industries such as alcohol, gambling and tobacco.