West Africa has been named as of the geographical regions with high potential in Islamic finance, as reported by Thomson Reuters, and the Islamic Corporation for the Development of the Private Sector (ICD), the private sector development arm of the Islamic Development Bank (IDB), when they released the key findings of the fourth edition of the Islamic Finance Development Report at the World Islamic Banking conference (WIBC) 2016, held in Bahrain.
The CEO of ICD, Khaled Al Aboodi, said: “Currently, West Africa, and Africa in general, is at a stage where there is a need to broaden the source of funds required to support its large infrastructure deficit and plug its revenue shortfall caused by the global commodity slump, and Islamic finance can be the solution. The recent sovereign issues in Africa will not only serve as an impetus for other African governments to follow suit and diversify their financing instruments via sukuk, but they will help the Islamic finance industry to mature and pave the way for private sector growth and the development of capital markets in countries where they are still nascent.”
From the report, the global Islamic finance development, as measured by the IFDI global average value, declined to 8.8 this year from 9.9 at the end of last year. Additionally, Islamic finance assets grew 7 per cent amounting to 2 trillion USD at the end of last year. Also, it was identified through the report that 622 institutions provided Islamic finance education in 2015 and 35 countries practice Islamic finance regulation in 2015. The reduction in performance also reflects the poor performance of many nations due to aspects that are based on actual market practice, such as financial performance and corporate social responsibility. As Malaysia, Bahrain and the UAE continue to dominate the IFDI report for the 4th consecutive year, some African countries have also increased their performance. African nations, including South Africa, Morocco, and Tanzania have significantly increased their performance and has climbed up the top 15 IFDI ranking. These nations are all working towards expanding their Islamic finance industries.
The report also indicated that there is a need for better corporate governance through the regulation of Islamic financial institutions. A governance measure by Shariah and Corporate Governance sub-indicators shows a steady growth in governance. There are 35 countries with at least one type of Islamic finance regulation in practice. Meanwhile, several countries with low corporate governance values need to strengthen their financial reporting framework for Islamic financial institutions. This is evidenced by the low number of disclosed items that need to be reported in annual or financial reports. However, Malaysia and Pakistan made great strides in upholding Shariah governance framework during 2015, while African nations Nigeria and Morocco are moving towards a centralized Shariah board approach.
The report continues to examine key statistics, top performers and the trends across five indicators that are significant for the development of the US$2 trillion Islamic finance industry across 124 countries.