At the recent B20 summit in Johannesburg, a full session was dedicated to Islamic finance in Africa. This is important, because it legitimi-ses Islamic finance as part of the mainstream global economic dialogue. ‘Our discussion highlighted major trends shaping the sector, including a shift in the global view of Africa from “Africa rising” to Africa as a future global leader,’ says Ameen Hassen, head of Standard Bank Shariah Banking.

Hassen – along with Amman Muhammad, CEO of FNB Islamic Banking – was among the speakers at the B20 Islamic finance forum. Further discussion points included the large share of Africa’s population that is Muslim, and the rising role of the Middle East as a global investor and trade partner, with significant capital seeking compliance with Islamic religious law (Shariah).

Islamic finance is based on four core principles: the prohibition of interest (‘riba’); focus on ethics (prohibiting investment in unlawful businesses, such as those related to alcohol, gambling and weapons); transparency (no hidden contract terms or exploitation); and equitable sharing of risk and reward (primarily through the use of profit and loss sharing contracts).

The essential distinction between conventional and Islamic finance lies in  the type of business relationships the bank has with its client, and how this relationship is regulated.

‘The Islamic bank is a trader, an investor, a lessor and a service provider to its client,’ says Al Baraka Bank.

‘In conventional banking, deposit and loan transactions typically involve monetary exchange, with interest being either earned or charged, whereas in Islamic banking, transactions are structured as trade or partnerships or service agreements designed to facilitate the customer’s requirements.’

These principles are attracting an increasingly broader clientele. ‘Islamic banking is now recognised as a credible alternate to conventional banking and is available to all who choose, irrespective of race and religion,’ says Muhammad. ‘It’s proving to be a dynamic and rapidly expanding sector of our nation’s financial landscape.’

While SA still only accounts for a small proportion of the $5.47 trillion global Islamic financial market (which is projected to reach $9.31 trillion by 2030), Muhammad says it’s the trajectory that paints a more accurate picture. He quotes September 2025 information, collated through the Banking Association of South Africa’s Islamic banking sub-committee, which reflects that the total Islamic banking deposits in SA have topped R103 billion. This represents substantial growth from the R37 billion in deposits in mid-2020 – a growth which, according to Muhammad, is not an anomaly but a consistent trend.

‘Overall Islamic advances [in SA] were reported at approximately R25 billion, highlighting a low overall penetration into the core target market and signalling immense growth potential,’ he says.

In SA, Islamic finance is gaining traction in segments such as Shariah-compliant banking, insurance (takaful) and bonds (sukuk).

‘Beyond traditional retail-focused structures, the market now includes instruments designed to accommodate working capital needs, balance sheet optimisation and long-term investment – including murabaha used in structured trade, sukuk for scale capital funding, and syndicated Shariah-compliant facilities that replicate the economics of conventional loans within an ethical framework,’ according to a paper by Jason Abt, senior investment banker at Absa CIB, and Shaheen Suliman, Islamic banking executive at Absa.

‘Murabaha is, for example, applied for trade finance, where the bank purchases goods upfront and sells them to clients at a transparent markup payable per agreed terms,’ says FNB’s Muhammad.

‘We have adapted traditional Islamic finance structures by maintaining the core Shariah principles in each product while carefully considering South Africa’s regulatory environment and business requirements,’ he says.

Another example is diminishing musharaka, a co-ownership model for property finance, where the client gradually buys out the bank’s share over the finance term.

‘Say, for example, a business seeks to acquire new operational premises to expand its manufacturing capacity,’ Suliman and Abt write in their paper. ‘Under a conventional structure, this would typically be financed through an interest-bearing loan secured against the property. Within a diminishing musharakah model, however, the bank and business jointly purchase the property, with the business gradually acquiring the bank’s share over time through scheduled payments.

‘The business also pays rent on the portion it does not yet own, compensating the bank for use of its capital. This structure enables asset acquisition without interest and ensures the financing arrangement remains anchored in shared risk and tangible economic value.’

Muhammad says that for movable assets, ‘we structure ijarah agreements that are asset backed and interest free. FNB is in the process of introducing several new products, including working capital financing, which is based on the tawarruq structure, as well as development finance, which is aligned to the bank’s diminishing musharaka structure for property finance.’

Standard Bank has also seen steady growth across its Shariah Banking portfolio and was named ‘Best Islamic Bank for SMEs in SA’ at the 2025 Global Banking and Finance Review Awards. ‘As a central part of our economy, it’s important that SMEs have access to financial solutions that support their operations and meet their Shariah requirements,’ says Hassen. The bank offers these enterprises a range of products that includes Shariah-compliant commercial asset finance, savings and investment products, commercial property finance, working capital solutions and day-to-day transactional banking services.

‘A key recent development is our Shariah-compliant overdraft facility, the first overdraft of its kind in sub-Saharan Africa,’ says Hassen. ‘It allows clients to access short-term funds in a flexible way while remaining within Shariah rules. This fills a long-standing gap in the market and offers practical support for individuals and businesses.’ Standard Bank also launched a Shariah-compliant liquidity management solution for business clients that helps them optimise returns across their product set while staying fully compliant.

Islamic finance is experiencing innovation across digital, retail, sustainability and capital markets. In December 2025, Al Baraka Bank announced the launch of a Shariah-compliant foreign currency account that allows customers to hold and transact in six major international currencies (dollar, euro, pound, Turkish lira, dirham and rand) using one secure Visa card. Called Vivere, the account supports online purchases, in-store transactions, ATM withdrawals abroad and global travel needs.

Crucially, SA’s watershed moment for Islamic banking happened in November 2023 when National Treasury issued the continent’s first sovereign rand-denominated sukuk. According to the JSE, SA’s sovereign sukuk programme comprised four tranches that were 1.74–1.77 times oversubscribed at issuance. This indicated strong institutional appetite – predominantly from domestic banks – and was backed by R36 billion in bids for R20.4 billion issued.

‘Beyond this landmark issuance, we witnessed a critical regulatory advancement,  which came from the South African Reserve Bank in October 2023 (prior to the November 2023 sukuk issuance), when it issued a circular confirming that sukuk can qualify as high-quality liquid assets,’ says Muhammad.

‘This decision is a technical but important step for the industry. It placed the local cur-rency sukuk on an equal footing with conventional government bonds in meeting bank liquidity requirements.’

He explains that the announcement removed significant barriers that Islamic banks faced previously, in having no option but to acquire interest-bearing bonds, and now allows for dedicated investment and growth in the sector.

The JSE reports that over the past two years, sukuk issuance has shifted from only government-backed instruments to include asset-backed, ESG-aligned corporate sukuk, which signals a broadening of the asset class. Currently, the JSE’s sukuk bond market stands at R21.4 billion.

The first corporate sukuk was issued in February 2024, when Agrarius Sustainability Engineered issued two sukuk sustainability-linked notes under a R10 billion programme. More recently, the same entity issued another bond, raising R615 million.

It’s noteworthy that the yields for the JSE-listed sukuk bonds compare favourably to their vanilla interest-rate equivalents. In line with the rest of the bond market, these instruments have enjoyed narrowing yield spread over the period, further enhancing the appeal to conventional fixed-income investors. Overall, the JSE is seeing a tran-sition from one-off sovereign deals to repeat corporate issuance, continuous oversubscription in primary markets reflecting robust institutional demand and competitive pricing compared to conventional bonds drawing broader investor interest.

The most recent Shariah‑compliant instrument listed on the local bourse is the 27four Global Shariah Equity actively managed ETF (exchange traded fund), which offers local investors diversified exposure to global equities that comply with Islamic finance principles.

‘The JSE is uniquely positioned to act as a gateway for Islamic finance into sub-Saharan Africa,’ says Samuel Mokorosi, JSE Head of Origination and Deals. ‘We have already taken important steps by listing sovereign and corporate sukuk and introducing Shariah-compliant ETFs. The next phase is to make South Africa even more attractive for global issuers.’ In view of this, the JSE signed an MoU with the Saudi Tadawul Group in May 2024, poten-tially opening doors to dual listings that will allow companies to trade on both exchanges at the same time.

‘One of the most exciting developments is the proposed synthetic financial centre under Operation Phumelela,’ says Mokorosi.

‘This initiative aims to create a framework that allows South Africa to operate as a multi-currency listing hub. In practice, this means issuers could list instruments in rand, US dollars, Saudi riyals or other currencies without the usual exchange control restrictions,’ he says.

‘For Islamic finance, this is a game-changer. Global sukuk issuers – including those in Saudi Arabia – prefer to issue in hard currencies like USD or ZAR. A synthetic financial centre would make South Africa competitive with hubs like Dubai and London, enabling us to attract these listings and deepen liquidity in the region.’

By Silke Colquhoun
Image: iStock