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 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.
Gulf African Bank has tied its public listing plans to the exit of International Finance Corporation (IFC) from its shareholders’ roll. IFC bought a 15 per cent stake in the bank for $5 million (Sh430 million) last year, which valued it at about $33.33 million (Sh2.86 billion) at the time. Chief executive of Gulf Bank Abdalla Abdulkhalik said IFC plans to exit through a public share sale. The IPO is also expected to raise additional capital for the lender. However, no timeframe has been set. Going by the IFC’s investment horizon the public could get a chance to buy into the lender by 2017. IFC’s policy is to invest in firms for between five and seven years. Gulf Bank's total assets stood at Sh13.56 billion as at the end of 2012, up from Sh5 billion as at the end of 2008.
But about 10 per cent of the Dubai’s US$80 billion debt load is estimated to comply with Shariah, casting the spot light on the credibility pedestal Islamic financing has ridden on over the years. Islamic banking experts at IIBI say that Islamic finance as a viable solution to get rid of the weaknesses of conventional finance is mainly limited to theoretical debate.
James Makau reported in Business Daily on 31 March that the Gulf African Bank and First Community Bank became the first fully fledged Islamic banks in Kenya but both had to record losses in their first year of operations as operating expenses and heavy set-up costs took a heavy toll on earnings.
Gulf African Bank recorded a loss of Sh281 million last year while First Community Bank (FCB) posted a loss of Sh307 million within the same period despite both players recording increases in net income during the year.