Islamic Finance: A Catalyst for Africa’s Economic Transformation

Our Special Correspondent

Islamic finance has emerged as a significant force in the global financial landscape, with assets projected to surpass $6.7 trillion by 2027. This growth reflects a robust industry driven by strong balance sheets, high profits, regulatory support, and sustained demand from both customers and investors across various regions.

Global Expansion and Regional Highlights

The global Islamic finance market has witnessed substantial growth, expanding from $7.16 billion in 2023 to an anticipated $8.94 billion in 2025, reflecting a compound annual growth rate (CAGR) of 11.9%. This upward trajectory is evident across multiple regions:

• Middle East: The region’s Islamic finance market is poised for robust growth, driven by technological advancements, sustainable finance initiatives, and the increasing issuance of sukuk (Islamic bonds).
• Central Asia: Islamic finance is gaining momentum, with total funding from the Islamic Development Bank (IsDB) to Commonwealth of Independent States (CIS) countries reaching $9.1 billion by the end of 2023. Uzbekistan and Kazakhstan have been the primary beneficiaries, receiving 41% and 18% of the funds, respectively.
• Africa: The continent has seen remarkable growth in Islamic finance, with deposits in Nigerian Islamic banks surging by 92.5% to NGN971.53 billion in 2023, up from NGN504.6 billion in 2022.

Africa’s Embrace of Islamic Finance

Africa’s engagement with Islamic finance has been particularly noteworthy:

• Nigeria: The Islamic finance market is projected to grow at a CAGR of 9.3%, reaching a market size of $5.28 million in 2024. This growth is bolstered by a significant increase in deposits within Nigerian Islamic banks, which surged by 92.5% to NGN971.53 billion in 2023, up from NGN504.6 billion in 2022.
• South Africa: The Islamic finance sector is expected to grow at a CAGR of 11.2%, reaching $7.94 million by 2024.
• Egypt: In a bid to bolster food security, Egypt’s General Authority for Supply Commodities (GASC) secured a $700 million loan from the International Islamic Trade Finance Corporation (ITFC) in February 2025.

Challenges and Future Outlook

Despite its promising growth, the Islamic finance industry faces challenges, including regulatory reforms. The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) has proposed changes requiring issuers of sukuk to transfer legal ownership of underlying assets to investors, aligning more closely with Islamic principles of risk-sharing. While this aims to enhance compliance, analysts caution that it could increase transaction complexities and costs, potentially deterring investors.

Nevertheless, the global sukuk market is set to surpass $1 trillion in 2025, solidifying its role in the debt capital markets of Organization of Islamic Cooperation (OIC) countries and emerging markets. This milestone underscores the resilience and adaptability of Islamic finance in meeting the evolving needs of economies worldwide.

In Africa, the continued integration of Islamic finance presents an opportunity to diversify financial markets, promote ethical investments, and support sustainable development. As more African nations recognize the potential of Shariah-compliant financial instruments, Islamic finance is poised to play a pivotal role in the continent’s economic transformation.