Potential of Islamic Finance in Africa Essay

639 Words Aug 20th, 2015 3 Pages
The potential of Islamic infrastructure finance in Africa

Lack of funding for infrastructure has been identified as one of the key hurdles hindering African infrastructure development. Africa ranks on the bottom of developing regions in access to infrastructure services and the continent’s total infrastructure financing needs amounts to a staggering circa. USD 93 billion per year until 2020 (Africa Infrastructure Country Diagnostic, 2009). Five years have since lapsed since these estimates were published and the gap continues to widen.

Islamic financial institutions that offer Islamic financial products are required by Sharia Law to establish a Shariah Supervisory Board made of Islamic jurists known as fuqha.

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The first option is based on a profit sharing principle;
The other option is fund mobilisation through selling at a higher cost price.
Key Islamic products that could be used are cost plus sale (murabaha), commission to manufacture contract (istisna), financial lease (ijara), Islamic bond (sukuk) and blending with western financing.

Murabaha refers to a financing instrument that involves a financial institution purchasing a complete physical asset with an undertaking to sell the asset later for a profit. istisna refers to an Islamic Finance instrument whereby an Islamic bank engages a borrower to undertake a contractor to deliver project assets; phased payments are received for construction and no installments are paid until the asset is operational (Ghanim, 2011). Istisna is commonly used during the construction phase of a project and structures usually involve a sales contract and a hire purchase contract (McMillen, 2011).

he ijara financing structure is equivalent to a financial lease; it involves the purchase by a financial institution and lease of the asset to a project developer at a pre-determined rate.
Under the ijara financing structure, the bank is compensated through profits. Ijara has been used for resource mobilisation in Malaysia, Saudi Arabia, Qatar and Saxony-Anhalt, Germany.
Sukuk is a relatively corporate financing instrument, first issued in the late 1990s.Sukuk comprises of Sharia-compliant medium-term to long term

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