By Faizal Bhana
SUSTAINABLE finance, specifically impact investing, has gained considerable momentum over the past few years and shows no sign of slowing down.
Investors are looking for ways to build up communities and put money to work responsibly. At the same time, demand for sharia-compliant products is growing, not just among faith-based investors, but also among non-Muslim, environmental, social and corporate governance-minded investors.
The largest group of consumers using sharia-compliant wealth management solutions are in the 50 to 70 age bracket, according to research published by Jersey Finance, titled “The Evolution of Wealth Management in the World of Islamic Finance 2019”.
It is expected, however, that in the next few years 60 percent of the demand for sharia-compliant products will come from those aged between 25 and 50 years. Individuals are forecast to account for more than half (55 percent) of this increase, versus 33 percent from family offices and 12 percent from institutions.
Similarly, in 2019, $145.7 billion (about R2 trillion) of sukuk, the sharia-compliant and structured bond equivalent, were issued globally, according to the International Islamic Finance Market. This represents an increase of 18.3 percent from 2018 and a staggering 499 percent from a decade ago.
Socially responsible investing (SRI) and the trend towards products offering environmental, social and corporate governance (ESG) standards are among the drivers of the increasing demand for sharia-compliant wealth management solutions.
Broader trends in innovation, fintech and impact investing have made sharia-compliant products and services more accessible to all classes of investors, while enhancing their attractiveness – particularly for those looking for a social return on their investments: the tech-savvy, ESG conscious “NexGen” population. Similarly, global multilateral Islamic finance infrastructure organisations are working towards standardisation of key structures to address issues of consistency and complexity.
Innovative fintech approaches are also lowering the costs of these products. For instance, a new sharia-compliant UK fintech platform focused on property investments via equity is now available – with no debt, no interest, and full voting and financial rights. Emerging technologies have the potential to disrupt the market and create change, with greater efficiency, accountability, and transparency, while serving a previously unbanked population. In Kenya, investors are developing a fintech platform to assist farmers in accessing funding, while online sharia banks now offer transactional products for retail investors.
Africa is home to about 250 million Muslims, and sharia-compliant products and services are available in more than 21 African countries, according to Nigeria’s Premium Times. These include Kenya, Morocco, Niger, Nigeria, Senegal, South Africa, Sudan and Uganda. Increasingly, Muslim families across the continent use sharia-compliant trusts and foundations to structure their private wealth for estate planning and succession planning.
Several infrastructure projects in the region have been funded through sharia-compliant financing, and the African Development Bank suggests that sharia-compliant finance could also be used to help strengthen the small and medium enterprise and microfinance sectors.
Nigeria has the fifth-largest Muslim population in the world and rising government support for sharia finance, Fitch Ratings said earlier this year. Currently, however, Nigeria has a less than 0.5 percent share of the global sukuk market, and sharia-compliant banking is in its infancy.
Kenya, on the other hand, is looking to enhance its position as a hub for sharia-compliant finance and plans to put in place a regulatory framework to govern its sharia-compliant industry.
In South Africa, there are plans to issue a second sovereign sukuk in 2021/22. The country previously issued a $500m sukuk in 2014, when it became the first African nation to do so, and received subscriptions worth $2.2bn– showing the strong appetite among investors for this type of product. It’s also testament to the vital role sukuk can play in financing South Africa’s post-pandemic recovery.
As interest in the sharia-compliant finance sector continues to grow and develop in Africa, coupled with a growing emphasis on responsible investments with real, measurable impact, investors will continue to search out and partner with fiduciaries, intermediaries and financial institutions that understand their requirements and have the necessary experience and expertise.
Faizal Bhana is a director: Middle East, Africa and India at Jersey Finance
*The views expressed here are not necessarily those of IOL or of title site
BUSINESS REPORT