According to Reuters, not only China, but also the Gulf States are spying profitable opportunities among the hundreds of millions of Muslims who live just a hop across the Red Sea.
Africa's economies are growing fast, thanks in large part to the commodities boom. Although many people on the continent do not have a bank account, the banking systems in some countries are growing increasingly sophisticated. Bankers from the Gulf hope that the middle class, particularly in the Muslim north, will turn to Islamic finance and that firms will raise money through Islamic bonds, known as sukuk. Moody's, the credit-rating agency, reckons that although Islamic finance was worth a puny $18 billion at the end of last year, its potential is close to $235 billion - about half what it estimates as the GDP of Africa's Muslim population.
So far, forays from the Gulf into Africa have been limited to a few countries. Sudan - where only Sharia-compliant finance is allowed in the north - dominates, holding over half of Africa's Islamic-banking assets. A number of Gulf banks, familiar with the country's language and oil resources, have joined forces with Sudanese investors to open Islamic banks.
Last year the first sukuk from Africa was issued by a Sudanese cement firm. Reportedly, the government also tapped the market in January by selling bonds to Gulf investors to sidestep American economic sanctions over the massacres in Darfur. The same year, the Kenyan authorities licensed two Islamic banks, Gulf African Bank and First Community Bank, both backed by Gulf investment.
Western banks are also dipping their toes in. In Kenya, Barclays was the first to offer an Islamic bank account appropriately named La Riba, meaning "no interest". South Africa's ABSA opened an Islamic banking division in 2006.
Some of the keenest African customers for Islamic products are in countries where Muslims are a small minority; to them it provides a way of affirming their cultural heritage.
Islamic finance in Africa is a niche market, and probably will remain so. Islamic scholars are few and far between; few countries' laws are suitable for Islamic banking; the margins tend to be thinner than in the conventional Western model.
Some countries, such as Nigeria, with almost 70 million Muslims and a booming banking sector should be fertile ground.
Lack of standardized documentation and practices has been repeatedly highlighted by the Islamic finance industry as one of the key constraints on the rapidly growing sector. Islamic law is open to interpretation, which leads to differences in banking practices depending on the financial institution's advisers.
The Bahrain-based International Islamic Financial Market (IIFM) hopes its Master Agreement for Treasury Placement, which is in the final stages of gaining approval by Islamic scholars, will become a standard document.
"Each bank takes its own different decisions. What we are trying to do is put together a document which is a benchmark document that the industry can use," IIFM Chief Executive Ijlal Alvi told a conference on the future of Islamic finance.
Assets invested according to Islamic guidelines have been growing at roughly 20 percent a year worldwide, reaching $900 billion in 2007, and are set to $2 trillion by 2010, according to accountants at Ernst & Young.
By far, the most common Islamic financial transaction is commodity murabaha, which involves a bank buying a commodity for a client, and the client paying the bank back the cost of the commodity plus a bank charge or "profit rate" at a later date. The contract helps banks manage liquidity, and can be used by the client to secure cash by selling the commodity off, effectively buying money from the bank for the cost of the profit rate.
Islam bans interest, and stipulates that deals must be based on tangible assets - money cannot be made from money alone.
Commodity murabaha deals have come under criticism in recent years on fears that it is just a paper trail to circumvent Islamic law, with no real prospect of a physical commodity changing hands. Others say the practice of clients effectively "buying" money for the cost of the profit rate by selling the commodity off is simply interest by another name. IIFM's new contract does not tackle these issues, but bankers say they are working on an alternative to commodity murabaha.
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