The Central Bank of #Kenya (CBK) announced it was in final stages of licensing two banks, DIB Bank Kenya, which is owned by Dubai Islamic Bank, and Mayfair Bank which is owned by Kenyan investors. The two firms had received an "approval in principle" before the indefinite suspension of new banks. CBK suspended the licensing of new banks on November 17, 2015 saying it needed to strengthen oversight. The moratorium stalled entry of international banks into the country, where commercial banks have come under closer scrutiny from the regulator because of increasing bad debts. CBK governor Patrick Njoroge said the local banking sector has made huge improvements over the past year, adding that CBK’s supervision department has improved its monitoring capacity.
The Kenyan capital markets regulatory authority and the Nairobi Securities Exchange today visited the Qatar Stock Exchange (QSE) and signed a memorandum of understanding (MOU) for cooperation between the two exchanges. The two sides will share information and technical assistance in respect of processes and procedures relating to listing, trading, depository operations, clearing and settlement. Mr. Samuel Kimani, Chairman of the Nairobi Stock Exchange, said that his is a young exchange looking for further development and cooperation opportunities. Rashid bin Ali Al-Mansoori, CEO of Qatar Stock Exchange, expressed his happiness and hope that the MOU will help enhance the economic cooperation between the two countries.
The Insurance (Amendment) Act 2016 signed into law by President Uhuru Kenyatta is set to enhance Kenya's position as the premier Islamic financial hub in Africa. The move came a week after the Capital Markets Authority (CMA) was admitted by the Council of the Islamic Financial Services Board (IFSB) as an associate member of the board. The new law provides for the licensing and regulation of Takaful insurance business in Kenya in order to encourage international investment in this sector. The decision to admit CMA was made at the 29th IFSB Council meeting held in Cairo, Egypt on December 14. In October, the government launched the Islamic Finance Project Management Office (PMO). CMA's Chief Executive Paul Muthaura said the authority membership in IFSB is a key step towards the development of Kenya as an Islamic finance hub. The Insurance (Amendment) Act 2016 now enables the operationalisation of risk-based solvency requirements for insurers that were introduced in the Finance Act 2013. Among those proposals is a requirement that an insurer should maintain a 100% capital adequacy ratio at all times.
Funding Africa’s huge development needs has long represented a big challenge. This has spawned all kinds of innovative financing mechanisms in the past and could spell an opportunity for Islamic finance, notably haria-compliant bonds, or Sukuk. Still in an embryonic state in Africa – but growing nonetheless – these instruments could play a potential role in delivering large infrastructure projects, from building new airports to constructing power plants and building roads. While it is early days for Africa, on a global scale Islamic finance is not a new concept.
A longstanding feature of the financial markets of Malaysia – a world leader in the field – and across the Middle Eastern Gulf, its spread now encompasses non Muslim-centric territories worldwide. This is a pattern that is catching on, albeit slowly, in Africa. While northern Africa has provided a natural entry point for Islamic products, current activity now focuses on sub-Saharan markets, notably in West Africa.
In #Kenya the Sharia-compliant lender First Community Bank (FCB) has laid off a third of its workforce as effects of the recent capping of interest rates continue to shake the banking industry. The lender’s staff costs stood at Sh241.4 million as at June 2016 which rose to Sh365.2 million at the end of September, prompting action by the bank’s management. The bank, which received a regulatory approval in May 2007 to start Sharia-compliant banking, last week reported a 16.2% jump in quarter-three net profit to Sh74.4 million. FCB is one of four banks that recently announced staff cuts as a reaction to the biting interest regulations on loans and deposits. The other three banks are Sidian Bank, Family Bank and Ecobank.
A Shariah-compliant Sacco that promises to cushion pastoralists from incurring losses during droughts has opened a second branch in Wajir town. Crescent Takaful Sacco (CTS), the first Shariah-compliant Sacco in Kenya, seeks to engage and provide financial inclusion to the poor in northern Kenya. The Wajir branch is the first outside Nairobi. CTS has various products tailor-made for the arid and semi-arid region such as the Mifugo Kash-Kash product that links pastoral traders to potential markets. According to the Sacco’s Chairman Hassan Bashir, livestock traders are eligible for up to 70% financing through the product. The product is mainly delivered using the Islamic contracts of Mudharaba and Musharaka. In both contracts, the profit share is pre-agreed upfront and a distinct profit margin is charged on each delivered transaction.
Kenya plans to develop Islamic finance through a wide-ranging taxation review and the establishment of a national sharia board. The country wants to build up the industry as part of a long-term plan to turn Nairobi into an international financial centre. The initiatives are being led by the Islamic Finance Project Management Office (PMO), a body setup recently to coordinate efforts among Kenya's regulatory agencies. According to finance consultant Farrukh Raza, the PMO has submitted an initial set of policy amendments focused on taxation of sharia-compliant products. A second batch of policy amendments will be presented by the end of this year, covering banking, insurance, pensions and capital market products. Kenya's National Treasury has said it is looking at the possibility of a debut sale of sukuk, although it has yet to finalize details for such an issuance.
Despite the efforts of the #Kenyan regulators, some toxic products have been allowed into the market under the banner of Islamic finance. The lack of clarity among regulators has allowed unscrupulous managers to mask certain offerings as Islamic, which has tainted the sub-sector’s reputation in recent months. Chase Bank was placed under receivership in April after special purpose investment vehicles it had classified as Islamic products were contested. Juma Makomba, the Sharia compliance manager at Takaful Insurance of Africa, said Chase Bank was not brought down by Islamic banking products because the facility would have qualified as a Qard-Hassan. He added that Qard-Hassan is given to somebody who is in distress, but the product they were calling a Qard-Hassan was in fact Musharakah.
Kenya launched an office dedicated to oversee its Islamic finance industry and help prepare for the issue a debut sovereign shariah-compliant bond. With 11% of Muslim population, Kenya has seen the emergence of Islamic institutions in recent years, including two banks, five Islamic banking windows offered by commercial lenders, insurance firms and a unit trust fund. The government wants to build up the industry as part of a long-term plan to turn Nairobi into an International Financial Centre. Kenya, which has applied to become a member of the Islamic Financial Services board, is carrying out legal and policy reforms to facilitate the growth of the industry. According to Kamau Thugge, the principal secretary at the Treasury, the government will consider issuing a sovereign Sukuk as soon as the legal and policy reforms are implemented.
In #Kenya the Higher Education Loans Board (HELB) is set to introduce Shariah compliant products. The proposal to make the students loan provider Shariah compliant is currently being reviewed by the Attorney-General, prof Githu Muigai. Once approved, the law will improve access for Muslim students to educational financial support helping them to obtain loans which do not infringe on their religious beliefs. The number of Muslim students at universities has been on a gradual rise and the move will be of great benefit. HELB Chief Executive Charles Ringera said the board was with Islamic finance experts in the implementation of the policy.
The high transaction costs involved in Islamic financing are likely to limit its use in funding infrastructure projects in Kenya. According to a new study commissioned by the Kenya Bankers Association (KBA) Islamic financing is deemed to be expensive. This fact is corroborated by the case study of Lekki project which utilised a loan financing scheme that attracts huge transaction costs paid by the special purpose company in terms of 1.5-4.0% one-off administration fees and notary fees. The working paper also recommended that a national Sharia board be set up so as to set standards for Islamic finance.
In #Kenya a National Bank customer has asked the High Court to shut down the lender’s Islamic banking wing while demanding Sh3.7 billion compensation over a loan repayment dispute. Tulla Reserve Supplies claims National Bank illegally changed his facility from a fixed term loan to a revolving musharaka loan, effectively raising the interest rate from 18.5% to an Islamic profit-sharing equivalent of 19.5%. Director Diba Hussein Dado holds that the alleged switch to a revolving musharaka loan left his firm owing Sh922 million to National Bank. His firm supplied grains to Kenya Prisons, Unga Limited and World Food Programme (WFP). But National Bank insists that the contracts it signed with Tulla were for revolving facilities and Mr Diba has opted to feign ignorance in the hope of building a case against National Bank.
In #Kenya the Higher Education Loans Board (Helb) has announced plans to introduce a Sharia-compliant product as a growing number of Muslim students join local universities. Helb CEO Charles Ringera said the proposal is contained in a Bill that is currently with the Attorney-General Githu Muigai for review. The new product will most likely assume the structure of Takaful finance. To roll out such a product, Helb will have to come up with special loan forms that require beneficiaries to commit that they will repay a Takaful contribution for the benefit of future students.
The Capital Markets Authority (CMA) of #Kenya is banking on introduction of non-conventional financing options. According to CEO Paul Muthaura the move aims to absorb anticipated economic shocks arising from capping of interest rates. Last week, President Uhuru Kenyatta assented to the Banking Act 2015, which will cap interest rates to not more than 4% above the Central Bank of Kenya rate. The CMA plans to introduce Sharia financing where interest rates don’t feature but have an element of risk management. The CMA is also working on establishment of a Sharia Board that would screen all the products being offered so that it can determine their suitability to be treated as Sharia products.
The growth of the Islamic finance industry has generated considerable interest and discussion in the financial world markets in recent years. According to a Senior Lecturer at the University of Nairobi School of Business Abdulatif Essajee, lack of information has inhibited the growth of the sector in Kenya. He projects a 25% growth in the coming years. The fastest growing segment in the world is the Issuance of Islamic bonds (Sukuk). In Kenya, the fastest growing segment is Islamic banking.
In #Kenya the Gulf African Bank has ambitious expansion plans for the local market. The bank, which is so far only represented in five counties, plans to open ten new branches between 2016 and 2017. Follwoing Sharia rules, the bank does not finance casinos, breweries and anything that is hazardous to the human body. Gulf African Bank is stable and prepared to increase core capital which now stands at Sh3.8 billion. At the end of the year the bank's capital will be above Sh4 billion, while by 2017 above Sh5 billion.
Kenya has a higher percentage of Christians compared to Muslims, but this country is seeing a surge in Islamic financing. According to Rahma Hassan Hersi, Managing Partner at Awal Consulting, the lack of regulations is deterring potential growth. There is a need to address this issue in tandem with the central bank. There is also very limited expertise. The penetration of Islamic finance in Kenya is estimated at 2% with a limited number of banks and insurance companies playing in that space.
Dubai Islamic Bank (DIB) plans to be operating in Kenya before the end of 2016, despite the Kenyan authorities' moratorium on issuing new banking licences. Kenyan banks have come under closer scrutiny from the regulator because of increasing bad debts, prompting officials and analysts to conclude the sector is ripe for consolidation. Three medium-sized and small banks have been taken over by the regulator since August last year. DIB had been in talks with the regulator before the moratorium was placed on the licensing of new commercial banks last November, meaning it would not affect a decision on its licence.
A report in one of the dailies suggesting that Islamic banking contributed to the collapse of Chase Bank is based on unfounded information. The facts as emphasised by Central Bank of Kenya Governor Patrick Njoroge are clear; that the underlying reason for the closure of the bank was under-reported insider lending by the directors and irresponsible use of social media, which accelerated the massive liquidity problems. Chase Bank is not the first bank to collapse and several others, which had no dealing with Islamic banking, have gone under. It is therefore insensitive to blame the collapse of Chase Bank on the Islamic banking system, which has proved to be an alternative and viable finance system.
Kenya is reviewing all laws and regulations governing its nascent Islamic finance industry to aid the issuance of a debut Islamic law-compliant bond, its attorney general said. The East African nation, which issued its first Eurobond in 2014, wants to expand the range of financing available for infrastructure projects like roads and power plants. The Treasury has said it is looking at the possibility of issuing the sukuk in the 2016/17 fiscal year, starting in July, but it has not offered details. Githu Muigai the review of that entire regulatory framework will be completed in a maximum of nine months. Kenya's central bank licensed two shariah-compliant banks in 2007. At least one firm has since started to offer Shariah-compliant insurance products.