Africa Finance Corporation and Partners Launch Islamic and Arab Finance for Economic Transformation in Africa, the Arab Region and Beyond Programme

Strategic Insights -

The Africa Finance Corporation (AFC), the United Nations Industrial Development Organization (UNIDO), the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), and the Union of Arab Banks (UAB) have formalized a new strategic partnership under the Islamic and Arab Finance for Economic Transformation in Africa, the Arab Region and Beyond (IFETAA) Programme. This initiative aims to address the significant barrier to Small and Medium-Sized Enterprises (SME) growth and economic transformation in Africa, the Middle East, and South Asia by leveraging Islamic finance.

IFETAA represents a new alliance that will drive capital and capacity towards MSME development, resilience, and growth across low- and lower middle-income countries. The programme will unlock urgently needed capital for Africa's economic transformation and support small and medium-sized businesses, increase productivity and resilience, and accelerate economic transformation in developing countries.

Key Takeaways:

  • The IFETAA Programme will unlock urgently needed capital for Africa's economic transformation, with the goal of directing capital stored in monetary markets into the real economy.
  • Islamic finance, with over US$4 trillion in assets, offers a largely untapped opportunity to address the financial gap faced by SMEs in Africa, the Middle East, and South Asia.
  • IFETAA will facilitate access to finance by developing a pipeline of bankable MSME projects, establishing financial and non-financial de-risking mechanisms, and supporting host governments in strengthening regulatory frameworks to expand Islamic and conventional bank lending.
  • AAOIFI pledged to mobilize 20 percent of Islamic Financial Institutions' loans and advancements towards MSME development, while UAB reaffirmed its commitment to channel US$1 trillion from its member banks towards the Sustainable Development Goals (SDGs).
  • AFC, a close partner to UNIDO, has committed to delivering innovative, Shariah-compliant solutions that drive inclusive and resilient economic growth.
  • H.E. Shaikh Ebrahim Bin Khalifa Al Khalifa, Chairman of AAOIFI, announced that AAOIFI will work on developing a Shariah-compliant finance programme enriched with technical assistance, regulatory support, and capacity building.
  • Dr. Wissam Fattouh, Secretary General of the Union of Arab Banks, stated that IFETAA is more than a programme -- it is a call to action, mobilizing capital to shape the future of the region and build resilient, inclusive economies.

Statistics:

  • Only one in five African firms has access to credit, and those that do often face prohibitively high interest rates averaging 25 percent, compared to just 5 percent in Europe.
  • Islamic finance has over US$4 trillion in assets, offering a largely untapped opportunity to address the financial gap faced by SMEs in Africa, the Middle East, and South Asia.
  • AAOIFI has pledged to mobilize 20 percent of Islamic Financial Institutions' loans and advancements towards MSME development, equivalent to US$1 trillion.
  • UAB has reaffirmed its commitment to channel US$1 trillion from its member banks towards the Sustainable Development Goals (SDGs).
  • AFC has a financial mechanism and expertise to support the programme and will unlock urgently needed capital for Africa's economic transformation.
  • UNIDO has committed US$500,000 to support the preparation of the IFETAA programme and its initial implementation.

Sources:

  • Africa Finance Corporation (AFC) (www.AfricaFC.org)
  • UNIDO
  • The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI)
  • The Union of Arab Banks (UAB)
  • OPEC Fund Development Forum
  • A World Without Hunger conference in Addis Ababa in 2024