Senegal is the latest African nation looking to tap the growing Islamic finance market by issuing its first sovereign Islamic bond in 2011, three sources familiar with the matter, including an official at Senegal's Ministry of Finance said.
Two people familiar with the talks confirmed that Citibank is serving as an arranger on the planned Islamic bond, or sukuk. But they said the deal is still in its very early stages and details on size and tenor remain sketchy.
With Muslims comprising 94 percent of its population, the potential for Islamic banking is strong within the West African nation, said Birahim Seck, chief executive of SYM International. SYM is a financial advisory firm that provides services to international investors looking to invest in Senegal.
Seck added that while other African nations have struggled with political strife and coups, the country has emerged as a relatively stable hub for regional business, which is attracting increasing investment interest from the oil producing Gulf.
"Investment needs security and unlike many countries in Africa, Senegal is a stable democracy." said Seck.
One source familiar with Senegal's sukuk ambitions, said the country is looking to further strengthen its relationship with the Middle East and sees a sovereign Islamic bond issue as an attractive offering to lure Arab investors.
Sixty percent of the $1 trillion Islamic finance industry is estimated to reside within the Gulf, industry experts said.
Senegal already has ties to Dubai Ports World - a subsidiary of troubled Dubai World - which invested millions in the development of Senegal's main container port in Dakar. And both Saudi Arabia and Kuwait have also made heavy investments in road and hotel infrastructure in the West African nation.
Seck said that Senegal remains under-banked, with only six percent of the population holding banking accounts, creating a large opportunity for Islamic finance. He said the passage of an Islamic banking law, which is expected to be signed next year, will pave the way for Islamic banks to set up operations.
"My company has been approached by financial investors from Kuwait looking to establish a bank here," Seck said. "Banks take time to establish and once the law is signed, more Islamic banks will come."
Africa has increasingly become a growth market for the Islamic finance industry with countries from Senegal to South Africa to Kenya exploring Islamic banking and sukuk offerings.