East Africa’s biggest economy is positioning itself to become a regional hub for Islamic banking. Kenyan finance minister Henry Rotich said on March 30 that the government would propose amendments to the financial laws and issue new regulations to facilitate a Sharia-compliant retirement scheme. It will also amend the public finance management act to provide for the issuance of sukuk. In the past, Kenyan regulators found it hard to issue new regulations, as the government was battling the jihadist fundamentalist group al-Shabaab. Regulatory agencies say Kenya is now ready to allow Islamic finance and banking to thrive. In fact, Kenya is already a regional leader in Islamic banking. The country has two fully-operating Islamic banks. There’s also one takaful Islamic insurance company, a sharia-compliant mutual fund and two cooperatives. In December, Kenya joined the Islamic Financial Services Board based in Malaysia.
One of the biggest issues plaguing efforts to help the millions of refugees flowing out of Syria is a lack of funding. In September, the World Food Program (WFP) had to drop one-third of Syrian refugees from its food-voucher program, including nearly 300,000 in Jordan alone. Abeer Etefa, WFP regional spokesperson for the Middle East, said the agency needed $236 million to keep its food-voucher program afloat through November. One way of remedying the issue may lie in bond markets. In a move that could potentially raise tens of billions in economic assistance to the region, the United Nations, World Bank, and Islamic Development Bank have unveiled a plan to issue bonds.
Pope Francis was sharply critical of the global arms industry in a speech at the Vatican this week, telling thousands of children in Rome that weapons manufacturers are money-hungry opponents of peace. Some people don’t want peace because they make more money from war, he said. The devil, he added, enters through the people's wallets. The arms industry, which had sales of at least $400 billion in 2013, is dominated by US and European firms, according to data from the Stockholm International Peace Research Institute, not to forget China’s mostly state-owned arms manufacturers. Pope Francis has spoken before against weapons and their impact on war, tweeting in 2013 that he condemned the use of chemical weapons.
Islamic finance is surging across the globe, gobbling up an ever-increasing share of the more than $220 trillion in international assets outstanding. That is, everywhere except in the US and Canada. A combination of regulatory hurdles, a lack of proper rules and standards, and general Islamophobia can be blamed. Another hurdle is the requirement that US banks keep their risk ratios fairly low. In order to be compliant while also maximizing profit, banks usually invest in the huge supply of fixed-income securities such as treasuries and conventional corporate bonds, which are prohibited by Islamic laws. Despite the challenges, both the US and Canada are a natural fit as homes to the bustling and dynamic Islamic finance industry.
The growth in demand is moving sukuks from a niche category to a viable alternative investment. This year’s issuance so far has been dominated by Malaysian issuers, with 63% of the market, followed by Saudi Arabia with 13.7%. Malaysian bonds in particular are attracting “agnostic” investors including hedge funds and fixed income managers who don’t necessarily follow sharia. Despite sukuks’ rapid growth, they remain a far from mainstream asset, and one limited mostly to sophisticated investors because of an often complicated structure. They’re also much less liquid than traditional forms of government or corporate bonds, because the secondary market is much smaller. But for investors looking to buy and hold, they’re looking more attractive all the time.
Indonesia has a history of high inflation and a dependence on foreign capital. The Indonesian Rupiah was Asia’s worst performing emerging market currency in 2013. But Indonesia is also the world’s most populous Muslim nation. In order to reduce its reliance on other economies, the country’s religious ministry has built up $5.4 billion in reserves from deposits made by the millions of its citizens seeking to make the pilgrimage, or Hajj, to Saudi Arabia each year. Last year, the Hajj department began to invest in Sharia compliant bonds issued by the Indonesian government. Like its neighbor Malaysia, the country is now setting up a Hajj financial management agency, which could realistically play a key role in developing the country’s Islamic finance markets and reduce its reliance on offshore funds.