Islamic Wealth Management In A Shifting African Private Wealth Landscape

Africa’s private equity landscape is experiencing a fundamental shift. A budding generation of wealthy individuals is seeking to circumvent dwindling local economies in favor of outbound investments into new markets and alternative assets.

Across the continent, High Net Worth Individuals (HNWI) – defined as those who have US$1 million or more of investible assets – are exploring mechanisms to either externalize their wealth or invest in return-generating opportunities geared toward local sustainable development goals. The post-pandemic period has seen a sharp rise in homegrown, self-made HNWI across the continent. This is partly driven by the boom in technology businesses, including fintech ventures, from the continent’s key technology hubs in Nigeria, Kenya, and South Africa.

The devastation brought on by the COVID-19 pandemic has drawn into sharp focus the exigency of viable succession planning for corporates, affluent individuals, and family offices. Similarly, the need to tap into third-party funding be it from financial institutions or private HNW investors has necessitated the professionalization of the management and governance structures within family businesses, including the well-established ones.

The convergence of these factors has resulted in International Finance Centres (IFCs) and banking institutions having to enhance their offering in the private client and private wealth space to ensure maximum value for their growing affluent client segment.

Whether catering to the cultural, ethical or religious beliefs of their clients, customers, and end-users or integrating globally accepted and expected standards within their products and services such as ESG considerations, IFCs like Jersey is at the forefront of providing the environment, expertise, and experience for such offerings to be offered within its existing robust regulatory and legal framework.

One area of growth with vast application in the African context is in the Islamic wealth management sector – and the growth potential for this across the continent is staggering when viewed through the prism of increased demand and popularity generally for Islamic Finance products and services continentally.

Recent studies, such as the Africa Wealth Report for 2021, show that while the total private wealth held in Africa has fallen by 16% over the past decade, this figure is projected to skyrocket by 30% over the next ten years, reaching US$2.6 trillion by 2030.

Similarly, for Islamic Finance generally, the volume of Islamic bond (Sukuk) issuance on the continent is expected to significantly expand in the coming years, with countries like Kenya, Tanzania, South Africa, Egypt, Morocco, Sudan, Senegal, and Nigeria best positioned for growth in Islamic finance (according to Moody’s). Sovereign entities across the continent are exploring tapping into this alternative form of financing to meet their growing national financing requirements.

Global sales of new Sukuk have reached nearly US$24bn so far in 2022, the best start of any year since 1999 –  according to Bloomberg-compiled data. While the African Sukuk market is relatively small by comparison, countries are showing a renewed appetite for this type of investment.

In 2020, Nigeria announced an N150bn Sukuk issuance – the funds obtained being ring-fenced for local infrastructure development projects. Earlier this year, the Egyptian cabinet instructed its finance ministry to implement measures aimed at issuing sovereign Sukuk on international markets. Morocco, Sudan, South Africa, and Senegal all have a history of Sukuk issuance while Kenya is actively modifying its tax legislation toward the development of Islamic financing models.

A recent report by Jersey Finance, entitled ‘Global Attitudes to Islamic Wealth Management’, highlighted a survey of more than 2000 HNWIs, finance managers, and family offices and revealed West Africa and Southern Africa as jurisdictions with low investment activity to date. However, with the potential for increased activity in the future.

The finding is further corroborated by the performance of Islamic banking institutions active in these jurisdictions both pre-and-post COVID-19. Recent news coverage on South Africa’s Al Baraka bank showed profits increase by 12.4% between January and June 2019 compared to the previous year, while the Islamic financing division of Nigeria’s Sterling Bank experienced a 24% growth in profits despite a 16% contraction in total assets in the Nigerian commercial banking segment.

The Banking Association of South Africa (BASA) said the value of Islamic financial services products grew strongly, with deposits reaching USD 2.3 billion R37 billion (R35 billion in 2019) and advances amounting to USD 9 billion R14.6 billion (R12.4 billion in 2019) by June 2020.

African interest in Islamic financing also comes with myriad upsides for other financial services and investment priorities, particularly in the family business and private wealth sphere. With an increased focus and attention on Sharia compliance, families and private individuals are also turning their attention to family governance, including succession planning, the integration of the next generation and more generally private wealth management

Jersey Finance found that concerns among HNWIs regarding succession centered on ensuring a smooth transition of inheritance and maintaining a united family, retaining wealth within the family, growing the wealth for future generations, and safeguarding against investments being misused or lost.

An overwhelming 96% of survey participants said that it was important for their wealth to be transferred to their heirs; 36% had already taken steps to achieve the transfer of wealth (through multiple models); with 60% expecting to action on their plans when relevant to them.

The pandemic has underscored the need to implement all-inclusive, multigenerational wealth structuring plans while mitigating risks to the asset portfolio – present and future.

It is quite likely then that HNW families undertaking succession planning will be seeking a jurisdiction that is compatible with easy access to high quality advice, based on niche expertise and experience. This jurisdiction also needs to afford judicial recognition to Shari’a investment structures – in line with globally accepted Sharia-compliant models. Families of course also want to continue to invest across Africa and globally and therefore will be after a jurisdiction that provides this multifaceted, globally recognized, and approved, platform that adheres to the ever-increasing global regulatory framework and rules, not least around transparency and economic substance.

Jersey is an example of such a jurisdiction that ticks all these complex and diverse requirements of today’s HNW African families and individuals. Jersey Courts have often made clear they will not enforce foreign judgments that seek to challenge the veracity of their wealth protection and succession structures. This provides comfort to families seeking a safe, secure, and legally reliable jurisdiction that helps them to preserve wealth, protect heirs and beneficiaries and respect the wishes of the testator.

A new, dynamic class of African investors is emerging – powered by financial growth and supported by digital innovation, both within and outside the Islamic Finance sector, and across the continent.

As this emerging generation becomes more global and sophisticated, they are turning to IFCs like Jersey, for providing them with a tried and tested award-winning platform to enable outbound investment into new markets, whether in Africa or globally, and sectors such as philanthropy, impact investing, and alternative assets.

The challenge is now for institutions, policymakers, product developers, and jurisdictions themselves to match these requirements and keep up with this growing class of niche African investors.

By Faizal Bhana, Jersey Finance Director – the Middle East, Africa, and India – at Jersey Finance