The changing face of finance - AFC's use of Dubai's Islamic finance platform

Middle East

In January this year, we wrote about Shariah compliant sovereign sukuk issuances in Togo and the Ivory Coast, and the opportunity for the growth of the Islamic finance sector on the African continent. That initial step into the Shariah compliant finance sphere has paved the way for additional partners to participate in the opportunities afforded by the sector, seen in February with the African Finance Corporation’s (“AFC”) 150 million US dollar Islamic financing transaction on the Murabaha platform of Nasdaq Dubai.

The platform itself, established by Nasdaq Dubai, the international financial exchange, in collaboration with Emirates Islamic Bank and Emirates Islamic Financial Brokerage, uses Shariah compliant certificates based on Wakala investments, and aims to develop a more attractive alternative for Shariah compliant transactions for both retail and corporate customers by facilitating an alternative to commodity based Murabaha products. It also offers reduced risk of loss through price movement, spread, poor liquidity and delays. Since its launch in 2014, total transactions valued at more than 14 billion US dollars have taken place through the platform on behalf of an expanding number of corporate and individual users, now including the AFC.

Although this occasion was the first use of the Nasdaq Dubai platform by the AFC, this represents their second venture into Shariah compliant financing, having accepted a 50 million US dollar credit agreement with the Islamic Development Bank in 2015. As was the case then, this new finance arrangement is intended to fund a number of Shariah compliant projects across a multitude of African IDB member countries. Interestingly, the initial issuance of 100 million US dollars was oversubscribed by more than double, having a final book value of 230 million US dollars, somewhat demonstrative of a shift into the mainstream for Islamic finance in Africa, something which alternative centres for Islamic finance like Kuala Lumpur and London will no doubt take notice of.

AFC itself is a multilateral finance institution established in 2007 with the intention of providing a catalyst for private sector infrastructure investment across the African continent, providing project structuring expertise and risk capital to address Africa’s infrastructure development needs. It is the product of a treaty between a number of African states, including Nigeria (the host country), Guinea-Bissau, Sierra Leone, The Gambia, Liberia, Guinea, Ghana, Chad and Cape Verde, Uganda, Rwanda, Gabon and Djibouti. It has been increasingly viewed as the benchmark institution for private sector-led investment in the infrastructure sectors including power, natural resources, heavy industry, transport and telecommunications, all areas where Shariah compliant structures have been recently successfully utilised. The positive reaction from the AFC to the use of the platform will surely facilitate future use, and provide opportunities not just for the AFC, but for a number of regional and global investors.

Further details on the main structures used in Islamic finance and CMS’ market leading Islamic finance practice led globally by Shakeel Adli can be found in our global Islamic Finance practice brochure.

 

Co-authored by Michael Grant, trainee solicitor.