Morocco’s sukuk signal increased demand

Morocco’s sukuk signal increased demand
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Mubasher: Morocco’s began the selling of its first Islamic sovereign bonds issuance worth MAD 1.1 billion ($116.6 million), as tapping the sukuk market is a way for the government to access an alternative source of long-term financing via a diversified investor base, according to a recent report by Moody’s Investors Services.

‘’Morocco’s first sovereign Sukuk issuance is in line with our expectations for African sukuk issuance.

“We forecast further sukuk issuances in Africa to reach at least $1 billion over the next 18 months”, the report indicated.

The Islamic finance sector is set to grow steadily across Africa as financing needs increase and global investors become more comfortable with the legal structures of Islamic debt securities.

“The desire within Africa for stronger investment links with the fast-growing economies in the Gulf and Asia that have large Muslim populations with large pools of capital will help drive the issuance of sukuk on the continent,” Moody's Investors Service said in a previous report.

The continent’s large Muslim population will provide a solid foundation for the growth of Islamic banking assets, the report noted.

Moody's estimates the share of Islamic banking assets will rise to over 10% of the total African banking assets within the next five years, from less than 5% currently.

Moody's has identified 18 African countries that have the greatest growth potential for sukuk issuance, as well as Islamic banking, including Egypt, Morocco, Senegal, Nigeria, Sudan and Kenya.

Since the start of 2014 there has been $2.3 billion of African sukuk, or Islamic bond, issuance, providing new funding sources for both sovereigns and financial institutions.

However, African sukuk makes up just 0.5% of global sukuk issuance.

The ratings agency previously forecasted that the growth of the Islamic finance sector will continue to outstrip the growth of conventional assets across core Islamic finance markets in coming years.

This comes as demand for shari'ah-compliant financial instruments continues to rise in a noticeable rate.

"The Islamic finance sector will be supported by governments, whose objective is to grow the Islamic finance industry both domestically and globally, as well as by continued demand for Islamic products from individuals," according to Moody’s.

"Islamic insurers' penetration into Southeast Asia and North Africa will also drive growth in the industry."

"Globally, Saudi Arabia remains the largest market for Islamic finance overall, with Islamic financing assets worth $292 billion as of September 2017, while Oman is the fastest-growing Islamic banking market, logging a growth rate of 20% in the first nine months of 2017. This rapid growth is being driven largely by the country's late entry into Islamic banking", the report noted.

Moody’s also added that Islamic banking penetration in the Gulf Cooperation Council (GCC) increased to 45% of the total banking market, by the end of the third quarter last year, with annual sukuk issuance more than doubling to $100 billion from $42 billion in 2008.