By The concept of Islamic banking, also known as Sharia-compliant finance because its practical application must conform to the requirements of Islamic law, was first introduced in Kenya about 10 years ago, it was taken up by only a handful of Muslim elites. Last year, for example, the National Bank of Kenya opened 25,000 accounts in its Islamic banking window, National Amanah, almost 19,000 of which are held by non-Muslims. Islamic banking differs from conventional Western-style banking in various aspects.
According to the Institute of Islamic Banking and Finance, Shariah law stipulates that money by itself has no value and should not be used to get more money in this way.
Recently,as part of efforts to mobilize local funds and set Nairobi as a regional hub, Kenya’s government has unveiled a package of initiatives under its latest budget to develop Islamic finance in the country. The moves could spur Kenya’s decade-old Islamic banking sector and help the government fund infrastructure in a country where Muslims account for about 10 percent of the population of about 44 million.
In addition, Finance Minister Henry Rotich outlined the steps as part of the country’s 2017/2018 budget, released on Thursday, aiming to level the playing field between Islamic and interest-based transactions. The primary objective is to prepare the groundwork for a sovereign sukuk but also equally to attract corporate sukuk from the region. He further said that amendments to the Public Finance Management Act will also allow the government to issue Islamic bonds, or sukuk, as an alternative funding source.
It was confirmed that the new initiative could prove useful for the government that has set aside billions for infrastructure, with a fiscal deficit set at 524.6 billion shillings ($5.10billion).
“The primary objective is to prepare the groundwork for a sovereign sukuk but also equally to attract corporate sukuk from the region,” said managing director of IFAAS, Farrukh Raza.
He explained further that the country’s Treasury has said it is considering a debut sale of Sukuk this year, although national elections in August could delay the plans. The amendments will benefit Kenya’s two full-fledged Islamic banks and several Islamic windows, which have operated by way of exemptions till now.
As a matter of fact, Kenya has set its sights on becoming the Islamic finance hub of the East Africa region. With two shariah-compliant banks in operation, licensed takaful and retakaful businesses and a number of financial institutions offering products that comply with Islamic law, the country is well on its way to making this happen.
The increasing popularity of Islamic finance in Kenya can be attributed to a rising awareness in Sub-Saharan Africa of the growing trade interactions with the Middle East. Trade between Arab member countries of the GCC and Africa has grown from an estimated US$6.8bn to US$18.1bn in the last 10 years.
“Islamic finance has seen significant growth over the last two years, and will be a growth area in the region in the near future,” says Hassan Bashir, CEO of Takaful Insurance of Africa, Kenya’s first shariah-compliant insurance company.
Kenya is in the process of changing its finance laws to allow a smooth integration of Islamic finance in its banking sector. Indeed, the increasing interest in Islamic finance poses a new challenge to the country’s central bank, which will need to be well-prepared to regulate Islamic financial institutions looking to enter the market. However, this development will enhance the banking system in the country and also benefit the citizens by creating equal opportunity among the people.