To diversify infrastructure funding sources in international and regional capital markets, the Republic of the Ivory Coast has issued two Sukuk in the last five years: Sukuk ‘Etat de Côte d’Ivoire 5.75% 2015-2020’, fully repaid in December 2020, and Sukuk ‘Etat de Côte d’Ivoire 5.75% 2016-2023’.
With a total of XOF300 billion (US$532.51 million) issued, the Ivory Coast is the largest Sukuk issuer in the Francophone West African Economic and Monetary Union (UEMOA) of eight countries, and the second-largest in Africa after Nigeria.
Both Sukuk, issued through securitization vehicles (fonds commun de titrisation de créances or FCTC), were listed in October 2016 on the Bourse Régionale de Valeurs Mobilières which is the UEMOA region’s regional stock exchange. Mali, Senegal and Togo are the three other UEMOA countries that have issued Sukuk in the capital markets.
Review of 2021
With its large Muslim community, the Ivory Coast is a country in which Islamic finance should thrive. However, private-sector practice in Islamic finance is still very limited, with only a few active Islamic institutions such as Raouda Finance, an Ivorian microfinance institution set up in 2009 and specializing in the provision of Islamic financial services.
Burkina Faso’s Coris Bank launched in 2018 in the Ivory Coast Coris Bank Baraka, an Islamic window offering various Islamic finance products to individuals and businesses. Additional Islamic microfinance products have been offered to Ivorians in recent years, such as the Pilgrimage Savings Plan (Plan Epargne Pélérinage) and the Al Baraka Mutual Fund sponsored by Raouda Finance: this is one of the first mutual funds in the UEMOA region guaranteeing investment compliance with the rules of Islamic finance, including through an independent Shariah board.
While still largely unknown to the Ivorian public which is used to more traditional financing structures and banking products, the sector’s slow development in the Ivory Coast is primarily due to structural constraints including legislative and regulatory complexity. National and regional authorities have acknowledged these weaknesses and implemented measures to better promote Islamic finance.
In the first half of 2018, the Francophone West African Central Bank promulgated banking regulations supporting Islamic finance development across the UEMOA region and opening the door for financial institutions to position in this emerging segment.
Although these instructions constitute an ambitious legal framework for Islamic finance in the region, defining the conditions under which regulated credit institutions may exercise Islamic finance activities and their application remains limited to date.
According to the head of the Financial Sector Development Programme in the Ivory Coast, as of December 2020, “Islamic finance regulation has not yet been sufficiently popularized among credit institutions and decentralized financial systems”.
As recently as September 2021, the Regional Council for Public Savings and Financial Market or CREPMF launched a market consultation exercise in anticipation of its adoption of a regulatory framework for Islamic financial markets across the UEMOA region. This framework should allow regional capital markets to not only diversify sources of financing and investment but also explore new opportunities offered by Islamic finance.
The objective will be to foster the emergence of specialized financial institutions as well as new types of products, including Sukuk, Islamic mutual funds and Islamic finance indices on the regional financial market.
The consultation exercise itself was an occasion to attract market attention to the opportunities of Islamic finance, and was widely publicized across the region among financial institutions and investment advisors.
Market responses are collated by CREPMF, which should issue a summary, revised regulation proposals and other position statements in the coming months.
Preview of 2022
Despite these proactive measures, other constraints continue to restrict the full realization of the Islamic finance sector’s potential in the Ivory Coast and elsewhere in the UEMOA region. A significant aspect remains taxation and the need for an equal fiscal treatment of Islamic finance products with conventional/non-Islamic banking products.
This is even more relevant (and challenging) as financial and banking regulations are issued by regional authorities while taxation remains a national matter and therefore different in every UEMOA country; alignment will be key to the definition and growth of a significant regional market for Islamic finance products.
Additional constraints relate to the maturity of real asset markets across the region, where Islamic finance requirements to identify and source physical collateral may be difficult to implement.
Insufficient investment in infrastructure, energy and real estate across the UEMOA region, as in other sub-Saharan African regions, may delay the full emergence of Islamic finance as adjustment options are considered and adopted.
Ivan Cornet is the managing partner of Latitude Five. He can be contacted at [email protected]