Egypt may lose out to Nigeria, South Africa and Kenya in attracting Muslim wealth after political unrest forced the North African country to postpone plans to introduce Islamic bond regulation.
Egypt delayed the release of a timeline for the guidelines of corporate Islamic bonds sales to May from the first quarter, following protests that led to the removal of former President Hosni Mubarak, said Ashraf El Sharkawy, chairman of the Cairo-based Egyptian Financial Supervisory Authority. Nigeria plans to license at least two Shariah-compliant institutions by year-end and Mauritius set minimum disclosure standards for financial statements from banks offering Islamic services.
“Egypt is one of the biggest markets in the region, but the problem so far has been the lack of regulation,” Abdel Hamid Abou Mousa, the chief executive officer of Cairo-based Faisal Islamic Bank of Egypt, one of three Shariah-complaint lenders in the country, said by phone April 6. “When we have sukuk no doubt they will have a market among Gulf investors who are looking for places for their money.” Faisal Islamic may issue sukuk once regulations are in place, he said.
African nations, where Muslims make up about 40 percent of the population according to a study published by the International Journal of Environmental Science and Development in June 2010, are seeking to benefit from growing interest in Islamic finance. Global assets held by Islamic financial institutions may climb to $1.6 trillion in 2012 from about $1 trillion, the Islamic Financial Services Board said last year.
Global sales of sukuk, or bonds that comply with the religion’s ban on interest, more than doubled to $4.5 billion this year from $2 billion in the year-earlier period, Bloomberg data show.
Egypt, which hasn’t sold sovereign or corporate bonds that comply with Islam’s ban on interest, is concerned about losing ground to other African nations in attracting Muslim wealth, “but we have exceptional circumstances,” said Efsa’s El Sharkawy. “We have a pre-final draft but it’s not the time for it,” he said in a telephone interview on April 3.
Mubarak resigned on Feb. 11 after 18 days of popular protests that demanded the end of his rule. The country’s worst political crisis in three decades caused tourists to flee and companies to cut output. Finance Minister Samir Radwan said this month he would be “very happy” if growth in the current fiscal year, which ends in June, ranged between 2.5 percent and 3 percent, down from 5.1 percent in the previous 12 months.
The average yield for Islamic bonds in emerging markets fell 17 basis points last week to 4.5 percent on April 8, the HSBC/NASDAQ Dubai US Dollar Sukuk Index shows. The debt returned 2.9 percent so far this year, the data show, while debt in developing markets gained 1.5 percent in 2011, JPMorgan Chase & Co.’s EMBI Global Diversified Index shows.
The extra yield investors demand to emerging market sukuk over the London interbank offered rate narrowed for a third week, dropping 19 basis points last week to 242, the lowest since June 2008. The spread between Dubai’s 6.396 percent dollar Islamic bond over Malaysia’s 3.928 percent sukuk declined 29 basis points last week to 224, according to Bloomberg data.
The Bloomberg-AIBIM-Bursa Malaysia Sovereign Shariah Index, which tracks the most-traded ringgit-denominated government securities, was at 101.815 April 8, compared with 101.764 a week earlier. The gauge has risen 0.7 percent this year.
While turmoil in Egypt stumps development of its Islamic finance industry, other African countries are introducing banking laws to attract wealth from the Middle East and the about 434 million Muslims on the continent.
Nigeria, Africa’s biggest oil producer, is getting assistance from Malaysia to expand its Shariah-compliant industry, Central Bank Governor Lamido Sanusi said in a March 4 interview. Kenya plans to amend its finance law to accommodate Islamic banking rules, Central Bank Governor Njuguna Ndung’u said March 28.
Mauritius tightened disclosure regulation for lenders as it seeks to become a regional hub for Islamic finance, the country’s Central Bank Governor Rundheersing Bheenick said March 30. South Africa will amend legislation to allow the government to sell sukuk, the Treasury said in its Budget Review released in Parliament on Feb. 23.
“Since Africa wants to do business with the Muslim world, having Islamic banks will attract more business from companies in the Middle East,” Dubai-based Afaq Khan, chief executive officer of Standard Chartered Saadiq, Standard Chartered Plc’s Islamic unit, said in a telephone interview April 4. Islamic banking will also help attract deposits from Shariah-compliant customers, boosting banking industries across Africa, he said.
Standard Chartered Saadiq is “exploring opportunities” for expansion into Nigeria, Tanzania and Kenya, Khan said. “We have to wait for the regulations to come out before we can have a business plan in Africa,” he said. “We would like to have a presence in countries with significant Muslim populations.”
HSBC Amanah, the Islamic banking unit of HSBC Holdings Plc, has “no immediate plans” to expand into Africa, and is “monitoring its customer demand, opportunity and regulatory framework,” the bank’s spokeswoman Rosana Gulzar Mohd said. Dubai Islamic Bank PJSC, the United Arab Emirates’ biggest Shariah-compliant lender, isn’t planning to expand on the continent, the bank’s head of communication Salah Al Hashimi said in an e-mailed response to questions April 4. Dubai Islamic owns 28 percent of Bank of Khartoum in Sudan, according to the company’s 2010 annual report.
Business in Africa
Al Baraka Bank Egypt ESC, a Cairo unit of Bahrain-based Islamic lender Albaraka Banking Group, may sell dollar- denominated Islamic bonds, in the second half of this year, the bank’s chairman, Adnan Ahmed Yousif, said in February. Al Baraka, Faisal Islamic Bank and National Bank for Development are Egypt’s only Shariah-compliant financial institutions.
“We are speaking to the regulators and the clients outside of Africa who are interested in doing business there,” Standard Chartered’s Khan said. “Islamic banking will be good for the African economy.”
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