Four of the five largest African economies have resorted to raising funds from the international financial markets through sukuk issuance in the last few weeks. The question is whether such issuances are now becoming a regular feature of the mainstream public debt raising mix of debt management offices (DMOs) at several African ministries of finance.
A sukuk is an Islamic financial trust certificate, equivalent to a bond in conventional finance, that complies with Islamic religious law commonly known as sharia. Since the traditional Western interest-paying bond structure is not permissible, the issuer of a sukuk essentially sells an investor group a certificate, and then uses the proceeds to purchase an asset, repaying investors with funds accruing from the acquisition.
Sovereign debt is the bane of many countries, irrespective of economic status, and carries the burden of exorbitant debt servicing and finance costs, especially for developing countries, because of exaggerated risk perceptions by rating agencies. Africa is no exception in this respect.
But the playbook of African sukuk issuance is changing and assuming a ‘Made in Africa’ element, which may yet serve as a model for other equivalent issuers elsewhere. At the end of June 2025, Egypt for instance raised $1bn through the issuance of a leasing sukuk with a tenor of three years, priced at a rate of return of 7.875% per annum, payable semi-annually in arrears.
What is unique is that the entire issuance was underwritten by one bank, Kuwait Finance House (KFH), through a private placement, which also saves on costs associated with investor roadshows and calls, ratings and bourse listings. KFH is no ordinary bank. It is one of the largest in terms of assets under management and the second oldest Islamic bank in the world, established in 1977. Prior to this, Egypt raised $1.5bn through a similar leasing sukuk in February 2023.
According to the Public Debt Management Unit at the Egyptian Ministry of Finance, the plan is to issue several further sukuk tranches over the next three years, under its $5bn Trust Certificate Issuance Programme.
Egypt’s Finance Minister, Ahmed Kouchouk, stressed that despite the present economic challenges related to the current conflicts in the Middle East region, the sukuk issuance also comes at a time of notable improvement in the Egyptian economy. The proceeds from the issuance will be used to finance gaps in the 2024/25 national budget. The Ministry of Finance affirmed its commitment to reducing the external debt for budget bodies by around $1bn to $2bn this year.
While South Africa and Egypt have tapped the US dollar market with their debut sukuks in the past, the Federal Government of Nigeria (FGN), despite regular issuances in the conventional Eurobond market, has ring-fenced its sukuk issuances in the naira-denominated market and they are exclusively linked to the building and rehabilitation of 44 arterial roads and bridges across the six geopolitical zones of the country and the Federal Capital Territory.
In May 2025, the Nigerian Debt Management Office (DMO) issued its seventh sukuk to date, raising ₦300bn ($190m) through a 7-year leasing sukuk, priced at a fixed rental rate of 19.75% per annum, payable semi-annually in arrears. The transaction firmly entrenches the debt instrument in the public fundraising playbook of the Ministry of Finance.
The costs associated with sukuk and bond issuances are directly linked to issuance regularity, the presence of a yield curve, the success of the DMO in diversifying its fundraising strategy and investor base, and advancing the cause of access to and financial inclusion in the country’s capital market. A recent report by Fitch Ratings showed a strong correlation between the pricing and yields of conventional bonds and sukuk.
What was remarkable about this seventh FGN sukuk issuance is that it was oversubscribed by 735%, achieving an unprecedented subscription level of over ₦2.205trn ($1.41bn).
“This is clear evidence of the huge investor-appetite for the ethical instrument introduced by the DMO in 2017, as an innovative strategy to expand the nation’s investor-base and provide opportunities for all Nigerians to participate in the activities of the capital market.
“An analysis of the subscriptions showed that subscribers cut across various segments including retail, non-interest banks and financial institutions, conventional banks, pension funds, and asset managers,” stated the DMO.
To date, the DMO has raised ₦1,392.5bn ($892.46m) through its seven sukuk issuances. “The raising of funds through sukuk issuances to finance infrastructure projects,” says the DMO, “aligns with our President’s Renewed Hope Agenda, for which infrastructure development is a key pillar. The DMO remains committed to providing safe and liquid investment products to the public and supporting the FGN’s development plans.”
Social and financial inclusion
The success of the FGN’s sukuk strategy is also based on its social and financial inclusion and sustainability goals, a stated priority of the DMO’s Director General, Patience Oniha.
This latest issuance involved a wide range of Nigerian financial institutions, thus expanding the sukuk financial engineering value chain, and was jointly arranged by Greenwich Merchant Bank Ltd; Stanbic IBTC Capital Ltd, a member of South Africa’s Standard Bank Group; and Vetiva Capital Management Ltd.
It also has a strong retail subscription from ordinary Nigerians, thus democratising access to the capital market, backed by the sovereign guarantee of the FGN, thus giving extra comfort to ordinary investors.
The DMO’s strategy of instigating wider public awareness campaigns for encouraging investment in sukuk is paying off – judging by the 735% oversubscription. Even for institutional investors, the DMO organises a regular Investors’ Meeting in Abuja for the Sovereign Sukuk Issuances, as it does for Eurobond offerings.
The economic impact of the issuance of sukuks is evident in the improved road infrastructure and timely completion of designated projects. The DMO says there has been an improvement in road safety, travel times and faster movement of goods between major commercial cities.
The sukuk certificates are listed and traded on the Nigerian Exchange Limited and FMDQ Securities Exchange Limited, potentially freeing up further liquidity for projects.
Despite the evolving outlook for Nigerian sukuk origination, its potential is much bigger. The credit risk credentials of Nigerian sukuk offerings will only be tested when the DMO issues rated debt papers in the international US dollar or euro market, if only to ascertain international investor appetite for such papers and to diversify the sovereign’s foreign investor base.
There is also the challenge of how to upscale sukuk issuances to crowd in private sector involvement and to get more Nigerian states, agencies and corporates, like the Dangote Group, to raise funds through sukuk offerings, as an alternative to using often more expensive conventional bank finance, thus adding depth and variety to the local capital market.
Algeria’s maiden sukuk
Algeria is another market that is on the cusp of issuing its maiden sukuk. Despite being a founder member of the supranational Islamic Development Bank (IsDB), with its 27 African member states, it is a relative newcomer to the Islamic finance and capital market.
The government of President Abdelmadjid Tebboune hosted the 2025 IsDB Group Annual Meetings in Algiers in May 2025, which seems to be a driver of a new-found connectivity with the estimated $5trn global Islamic finance industry.
A proposed debut sovereign sukuk has been approved under the 2025 Finance Law and the Ministry of Finance’s Sukuk Issuance Framework. Banks are in the process of being mandated to manage the transaction, which is likely to be denominated in the local currency, the Algerian dinar, DZD. The proceeds from the issuance will be used to finance projects and infrastructure.
The plan is to go to the market for the debut sukuk in Q3 2025 to complement the funding needs of the 2025 National Budget, aiming to attract a wider base of foreign investors by diversification of the source of funding and investor base, and to boost confidence in the local capital market.
According to Zohir Laïche, CEO of CAGEX (the State-owned Algerian Export Insurance and Guarantee Company), “Islamic finance is steadily growing in Algeria, despite the country’s late arrival at the global level. The government has taken steps to develop the industry, including launching Islamic banking products and exploring alternative financing mechanisms such as sukuk.
“However, structured growth and regulatory developments are still needed. As the country explores syndicated Murabaha structures and sukuk for raising capital, we see an opportunity for insurance mechanisms (such as credit and political risk insurance) to complement these initiatives, thereby strengthening investor confidence and financial stability.”
Neighbouring Morocco is also set to join the sukuk issuance trend. In July, Reuters, quoting the Central Bank Governor Abdellatif Jouahri, confirmed that the Kingdom is in the process of issuing its second sovereign sukuk in the second half of 2025. Morocco issued its debut 5-year sukuk in 2018 which matured in 2023 and which raised 1bn dirhams (about $110m) in the process.
