COVID-19, with its share of economic consequences, has not spared Senegal’s economic activity. However, in the financial sector, as in previous economic crises, the field of Islamic finance has not really been affected. On the contrary, given its embryonic state in Senegal, this sector took advantage of this situation to reaffirm its solidity and extend its milestones in Senegal.
Indeed, despite the pandemic, the players and the authorities have contributed greatly not only to the improvement of the framework but also to the promotion and growth of the activities of this sector. Today, we are beginning to feel the full attributes and potential of this sector, which promises a very good future for Senegal.
Senegal is one of the West African Economic and Monetary Union countries that are bursting with capacity and welcoming with open arms the Islamic finance industry which is in the process of
being built there. In other words, we will have to witness a real implosion of this industry which will give a new breath to the economy of the country.
Review of 2021
2021 went on in a very positive note despite the presence of COVID-19 with considerable progress noted in the Islamic finance sector. Senegal has received a lot of funding from the IsDB. More than 80 development projects worth US$2.6 billion were financed by the IsDB.
Moreover, the International Islamic Trade Finance Corporation, a member of the IsDB group, has recently granted Murabahah financing in the amount of EUR100 million (US$113.05 million) to the National Electricity Company of Senegal (SENELEC), the company responsible for the production, transmission and distribution of electricity in Senegal, intended to cover 19% of SENELEC’s financing needs for the purchase of refined petroleum products.
The real estate sector, particularly social housing, also saw the contribution of the Islamic Bank of Senegal which granted funding of US$87 million to the Fund for Social Housing for the promotion of social housing.
The Islamic microfinance sector is undergoing a revival in Senegal with the approval of TAYSIR, the first 100% Islamic institution. This institution will certainly bring a supply that is perfectly in line with the growing demand for Islamic financial products.
We also note projects to redevelop the regulatory framework. Indeed, the Central Bank of West African States (CBWAS) has for several months initiated work for the creation of a central chair committee and the harmonization of the contractual framework of Islamic finance operations proposed by banks and decentralized financial systems. This work is well underway and we hope to see this framework in 2022. The Regional Council for Public Savings and Financial Markets on its part launched a consultation for the establishment of a regulatory framework dedicated to Islamic capital markets.
Preview of 2022
Given the considerable progress made, it is hoped that 2022 will be a flagship year for the growth of Islamic finance in Senegal. Indeed, since the presence of Islamic financial institutions will be tru-ly significant, a system of supervision by the CBWAS will probably be operational to allow the col-lection of reliable data on this sector of activity.
In addition, with the development of Islamic fintech, we will witness a true evolution and diversification of financial offerings and services. Moreover, we will see very soon the offerings of BBS Invest which proposes a digitization of Murabahah and a revival of the operations of Tawarruq. All these efforts and innovations make it possible to access operations and lift the veil on the presumption of non-compliance of Tawarruq operations. As Islamic finance advocates transparency in operations, digitalization remains the best way to achieve this result.
Meanwhile, we note likely revisions to the regulatory framework that are also highly anticipated in 2022. 2021 was an opportunity for the authorities to gather strong recommendations for the
improvement of the regulatory framework of Islamic finance. The latter advocate the completeness of the current normative system in order to encourage the diversification of the offerings of Islamic financial products and services and to encourage the growth of the rate of bancarization.
Senegal has institutions which for more than 30 years have been experimenting with Islamic finance but to date, its evolution remains at an embryonic level. Despite a glimmer of hope that occurred with the CBWAS’s instructions in 2018, the evolution of this subject remains indexed to the will of our policies and regulators.
Thus, it is up to all players wishing to embrace this sector to work in unison in order to develop an advocacy platform to be passed on to the authorities in charge of regulation. The said advocacy platform, to be developed on a national scale, will undoubtedly be in the ear of the regulator which will not fail to reconsider or adopt new standards so that Senegal, a favorable environment to Islamic finance, may become West Africa’s leading Islamic financial center.
Pierre Alexandre Lette is the legal director of the Regulatory Body of the Warehouse Receipt System and a consultant in Islamic finance. He can be contacted at [email protected]