With total assets estimated at nearly USD 1.4tn, Islamic finance could develop in North Africa where large current account deficits and retreating conventional financing sources have driven regional governments to tap opportunities offered by Islamic finance, Standard & Poor’s said in a report.

"Sharia-compliant banking previously presented an attractiveness that was at best exotic for regulators and banks active in these markets. Now, the perception is changing and public awareness is increasing," S&P underscored.

Such parameters are being observed in Egypt, Tunisia, and Morocco, according to S&P. The latter countries have recently taken steps to implement policies supporting the development of Islamic finance.

Tunisia plans to issue sukuk (Islamic bond) to lure new class of investors, while Egypt introduced new regulatory frameworks for sukuk issuance, S&P said. Morocco is also laying the legal foundation for Islamic banks, it added.

Islamic finance in North Africa, however, has yet to prove its economic added value beyond enabling products abiding with Islamic law, S&P said. Such added value could materialiсe by providing access to a new class of investors or by offering Sharia-compliant products at costs comparable with their conventional counterparts, the ratings agency noted.

Islamic finance can be suitable for infrastructure and project finance, as banks lack long-term funding capacity required by these projects, S&P said.

“Several projects in renewable energy, transport infrastructure, and communication are ongoing or expected to be launched in the future in North African countries. Using sukuk to finance some of these projects could help diversify investor bases and tap additional pools of resources,” S&P concluded.