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With the growing number of the Islamic financial service providers in Kenya, a proportionate increase in Shariah-related commercial and financial disputes is also expected. In Kenya there is no comprehensive legal and regulatory framework that governs the application of Shariah principles. Arbitration as a form of Alternative Dispute Resolution (ADR) mechanism is gaining in popularity owing to the time and cost it takes to resolve disputes. The disputing parties can select the arbiters and the proceedings can be held in private away from the media glare and therefore does not damage reputations and destroy brands. Islamic financial providers need to ensure that arbitration clauses are factored in their contractual documentations to take care of the need to seek sound Shariah determination of commercial disputes.

The International Finance Corporation (IFC) is offering technical advisory services to Gulf African Bank to help it lend more to small and women-owned enterprises. The advisory will cost $368,016 (Sh37 million) and is the latest such undertaking with local banks. Other banks that have signed similar deals include Co-op Bank and Equity Bank. IFC says the project will focus on competency assessment, opportunity sizing and product programme development for SME banking. The institution defines SMEs using various measures including firms having between 10 and 300 employees or annual sales of Sh10 million to Sh1.5 billion. The loan size per borrower usually ranges from Sh1 million to Sh200 million.

Biblically responsible investing (BRI) is an investment decision making process that applies Christian values to issues facing shareholders and stakeholders regarding moral and social principles. Currently it represents a tiny portion of the total assets invested, but funds using BRI practises are growing exponentially. Earlier this year, Ambassador Advisors, a Sh52 billion advisory firm converted all of their assets under management to align with biblically responsible investing best practices. Similarly, the Presbyterian Church in America (PCA) has invested over 60% of its Sh41 billion fund in line with biblical standards, the Southern Baptist Convention also screens the approximately Sh1.1 trillion in its investment portfolio using BRI principles. The guiding questions are "What would Jesus do?", "Is this right and just?", "Would God be pleased?" and these questions govern the investment process.

Kenya's Islamic finance industry is over a decade old but is yet to realize its full potential. The uptake of Shariah compliant financial products has been adversely affected by the absence of supportive legal and regulatory infrastructure, lack of skilled Islamic finance professionals, poor perception and lack of awareness. One other challenge is the lack of harmonisation of the Shariah standards. Industry stakeholders need to undertake a comprehensive training of the Shariah scholars and enhance public awareness in Islamic finance. Aqeel Consulting takes the initiative to organise a technical workshop for the Shariah scholars between July 11 -12, 2018 at the Windsor Golf Hotel and Country Club.

The steady growth in Islamic banking in Kenya was unexpected when Islamic finance started in Kenya in the last decade. The Finance Act of 2017 made amendments to the Co-operative Societies Act to facilitate shariah compliant products and enhance financial deepening. It also amended the Public Finance Management Act to recognise Sukuk as one of the national government securities. Despite this growth, there is still much to be done in developing regulations. Kenyan Islamic banks have tried to embed shariah governance within their governance frameworks. However, the mechanism lacks to ensure parity in shariah interpretations, product development and advisory and regulations at an industry level. Islamic capital markets remain hugely untapped in Kenya.

Gulf African Bank is set to open two new branches in Hurlingham, Nairobi and Mtwapa in Mombasa this year. Although several local lenders have announced outlet closures in recent months, Gulf African Bank is optimistic and set to improve access to financial services. Other local banks announced a freeze on expansion in a bid to protect their bottom lines. There are three fully-fledged Islamic banks in the country: Gulf, First Community and Dubai Islamic Bank, with at least 11 conventional lenders with dedicated counters for such products.

Ongoing development of Islamic finance in Kenya is expected to innovate the financial services sector. One area that will see a hive of activity in the local market will be the introduction of sukuk. The Kenyan government is now preparing to issue the first Sovereign Sukuk with the aim of diversifying sources of funding at competitive rates. Usually, Sukuk derives its financing structure from the nature of the underlying assets available to the originator, regulatory and tax considerations as well as perspectives expressed by the Shariah scholars. However, what may be declared as Shariah-compliant by a team of scholars could be rendered invalid and non-Shariah-compliant by a team of other scholars. This informs the need to have one central Shariah body that regulates the industry to minimise confusion from multiple non-structured Shariah opinions.

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.