Sukuk, an Islamic debt instrument that generates returns for investors without charging interest, is becoming an increasingly important tool in Africa’s public fundraising mix.
In recent weeks, four of the continent’s five largest economies have issued sukuk to raise funds from international financial markets, with more countries now considering them as a regular feature of their debt management strategies, according to African Business.
A sukuk is an Islamic financial trust certificate, similar to a conventional bond but compliant with sharia law, which prohibits interest payments.
Instead of paying interest, the issuer sells certificates to investors, uses the proceeds to purchase assets, and repays investors with funds generated from those assets.
For many countries, sovereign debt brings the challenge of high servicing costs, especially in developing nations, due to perceived risk from rating agencies.
Africa faces the same pressures, but sukuk issuance on the continent is evolving with a more “Made in Africa” approach that could serve as a model for others.
At the end of June 2025, Egypt raised $1 billion through a three-year leasing sukuk with a 7.875% annual return, payable semi-annually.
In a notable move, the entire issuance was underwritten by Kuwait Finance House (KFH) via a private placement, cutting costs associated with investor roadshows, ratings, and exchange listings.
KFH, one of the world’s largest Islamic banks, was founded in 1977 and is the second oldest in the sector.
Egypt had earlier raised $1.5 billion through a similar sukuk in February 2023.
According to Egypt’s Public Debt Management Unit, the country plans to issue several more sukuk tranches over the next three years under its $5 billion Trust Certificate Issuance Programme.
Finance Minister Ahmed Kouchouk said that despite ongoing economic challenges linked to conflicts in the Middle East, the issuance comes at a time of improvement in Egypt’s economy.
Proceeds will be used to address gaps in the 2024/25 national budget, with the ministry aiming to cut external debt for budget bodies by $1 billion to $2 billion this year.
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While both Egypt and South Africa have issued US dollar-denominated sukuk in the past, Nigeria has confined its sukuk to the naira market, using the proceeds exclusively for building and rehabilitating 44 major roads and bridges across the country.
In May 2025, Nigeria’s Debt Management Office (DMO) launched its seventh sukuk, raising ₦300 billion ($190 million) through a seven-year leasing sukuk with a fixed rental rate of 19.75% annually, payable semi-annually.
This latest issuance was oversubscribed by 735%, attracting over ₦2.205 trillion ($1.41 billion) in bids.
The DMO described this as “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.”
Subscriptions came from a wide range of participants, including retail investors, non-interest and conventional banks, pension funds, and asset managers.
Since its first sukuk in 2017, the DMO has raised ₦1,392.5 billion ($892.46 million) through seven issuances.
“The raising of funds through sukuk issuances to finance infrastructure projects,” the DMO said, “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.”
Patience Oniha, Director General of the DMO, has emphasised sukuk’s role in promoting social and financial inclusion.
The latest issuance involved multiple Nigerian financial institutions and strong retail participation, backed by the federal government’s sovereign guarantee.
Awareness campaigns and regular investor meetings have helped boost demand, while proceeds have visibly improved road infrastructure, reduced travel times, and enhanced the movement of goods between major cities.
Sukuk certificates are listed and traded on the Nigerian Exchange Limited and FMDQ Securities Exchange Limited, adding liquidity for further projects.
Looking ahead, analysts note that Nigeria’s sukuk market has greater potential, particularly if the DMO issues rated sukuk in the international US dollar or euro markets to test global investor appetite.
There is also room to involve more private sector players and encourage Nigerian states, agencies, and corporates such as the Dangote Group to use sukuk as a lower-cost financing option compared to conventional bank loans, adding depth to the local capital market.
In North Africa, Algeria is preparing to launch its first sukuk. Despite being a founding member of the Islamic Development Bank (IsDB), Algeria has only recently begun developing its Islamic finance sector.
The government hosted the 2025 IsDB Group Annual Meetings in May, signalling renewed engagement with the $5 trillion global Islamic finance industry.
The debut sukuk, approved under the 2025 Finance Law and the Ministry of Finance’s Sukuk Issuance Framework, will likely be denominated in Algerian dinars (DZD) and used to finance projects and infrastructure.
The issuance, planned for the third quarter of 2025, aims to diversify funding sources, attract foreign investors, and boost confidence in the local capital market.
“Islamic finance is steadily growing in Algeria, despite the country’s late arrival at the global level,” said Zohir Laïche, CEO of CAGEX, the state-owned Algerian Export Insurance and Guarantee Company.
“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… to complement these initiatives, thereby strengthening investor confidence and financial stability.”
Neighbouring Morocco is also set to issue another sukuk in the second half of 2025.
According to Central Bank Governor Abdellatif Jouahri, the Kingdom’s second sovereign sukuk will follow its debut 5-year sukuk in 2018, which raised 1 billion dirhams (about $110 million) and matured in 2023.
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Image Credit: African Business
