Out-Law News 1 min. read

West Africa bloc signs Islamic fund agreement for SMEs


The central bank of West African states (BCEAO) has signed an agreement with the private sector arm of the Islamic Development Bank to help finance small and medium-sized businesses (SMEs) through a $100 million Islamic fund.

The Islamic Corporation for the Development of the Private Sector (ICD) said the memorandum of understanding signed with the BCEAO would benefit SMEs in member countries of the eight-nation Economic and Monetary Union of West Africa (UEMOA).

The Jeddah-based ICD has committed an initial $30m for the SME fund and said it would help seek additional investors to increase its size to $100m.

UEMOA comprises Benin, Burkina Faso, Cote d’Ivoire, Mali, Guinea-Bissau, Senegal, Niger and Togo. They share a regional central bank and the Central Africa francs (XAF) currency, which is pegged to the euro.

The launch of the SME fund follows Cote d’Ivoire’s debut XAF 150bn ($249m) Islamic bond issuance, which was the second such transaction in the UEMOA. The sukuk was arranged by the ICD and reportedly saw a 38% allocation to investors from the Middle East region. In 2014, Senegal issued the UEMOA’s first Islamic bond.

Next month, Sudan will host the 2nd International Forum on Islamic Finance (IFIF). The IFIF said Sudan is the only country in Africa and one of two worldwide that has a banking sector “that is entirely Islamic”.

IFIF said its “primary aim is to highlight the experience of Sudan’s Islamic banks in funding large-scale infrastructure projects, improve trade flows and spur funding for micro, small and medium-sized enterprises”. These areas “are of key importance to Africa and represent the most significant opportunity for Islamic finance to contribute to the growth of the non-financial economy”, IFIF said.

The Islamic Development Bank’s annual report for 2012 (201-page / 4.34 MB PDF) said that, together with the Arab Bank for Economic Development in Africa, it was cumulatively co-financing 59 operations for $4.8 billion in African countries, focusing mainly on transport, agriculture and rural development.

In September 2014, South Africa entered the sukuk market with the launch of a $500m Islamic bond. The National Treasury said then that it had concluded its debut 5.75-year Islamic bond issuance in the international capital markets priced at a coupon rate of 3.90%, “representing a spread of 180 basis points above the corresponding benchmark rate”.

According to a report published last year by professional services firm EY (4-page / 125 KB PDF), sukuk have “opened the door to raise funds from private sector players and markets to fund public sector projects”. The report said the “broad range of sukuk structures and the access to funding is imperative in addressing infrastructural development needs”.

The report said: “African sukuk are worth considering, as they offer diverse geographical and credit exposures. Given the focus on equity-based and asset-backed financing, sukuk provide solutions to facilitate the development of communities at large.”

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