Kenya Islamic Finance Market Witnesses Marginal Growth of 0.2pct Since 2016

Islamic Finance Market Witnesses Marginal Growth of 0.2pct Since 2016

Mr. Abdulkhalik, Managing Director, Gulf African Bank PHOTO: Gulf Bank

  • Islamic finance is an interest-free finance system. It is asset-based as opposed to currency based.
  • The basic framework of Islamic finance is based on elements of Shari’ah, which governs Islamic societies
  • Islamic banking is founded on fairness and ethical banking practice

Kenya’s Islamic finance industry has witnessed a marginal growth of 0.2 percent to an estimated 3.0 percent attributed to increased awareness programmes.

“There has been some marginal growth since 2016 ( where it was estimated at 2.8 percent). Currently, it is estimated at 3%, although globally it is growing at a rate of 15-20% with gross assets of over USD 2trillion,” said Mr. Abdalla Abdulkhalik, Managing Director, Gulf African Bank during Fridays’ Kenya Bankers CEO Chat on Islamic Financing Options.

KBA further attributes to low uptake of Shariah-compliant financial products on the absence of supportive legal and regulatory infrastructure, lack of skilled Islamic finance professionals, poor perception and low awareness.

Gulf African Bank is the first and largest Islamic Bank in Kenya and one of the fastest-growing banks in the history of the banking sector of the country.

According to Abdulkhalik,  the essence of Islamic banking is to encourage trade transactions and partnerships in dealing with their customers. It promotes fairness and equity in transactions.

“There are two fundamental concepts for Islamic banking: prohibition of interest which is considered exploitative to the borrower and secondly the sharing of profit and loss with the customer. Islamic banking is open to people of all faiths,” said Abdulkhalik on whether the business is sustainable without the core revenue base that comes with interests, considered “haram”.

“The main challenge is the misconception that Islamic finance is only for Muslims.”

The fundamental principles are: prohibition of payment or receiving interests and sharing profits and loss in a partnership transaction.

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He also said Islamic Banking principles are the same all over the world. In Kenya, they are regulated by the Central Bank of Kenya through the approval of all products and services offered by Islamic banks.

“Islamic banks have two levels of governance. One is the CBK and the other one is independent Sharia advisory boards to ensure that all transactions are in compliance with Sharia law,” he stated. 

Under Sharia law, money is only a way of defining the value of something and has no value in itself.

“ This is because when a person having money is allowed to earn more money on the basis of interest, either in spot or in deferred transactions, it becomes easy for him to earn without bothering himself to take pains in real economic activities. This leads to hampering the real interests of the humanity because the interests of the humanity cannot be safeguarded without real trade skills, industry, and construction,” part of the Islamic Banking FAQs on Gulf Bank website.

The Kenya Bankers Association says since its inception, the Islamic finance model has grown rapidly, making Kenya a leading regional market for Islamic banking.

In recent years, Kenya has been ranked among 18 African countries that have the largest potential for the growth of Islamic banking and debt securities(sukuk). Kenya is the only East African country that made it to top of the list, which included Egypt, Morocco, Senegal, Nigeria, and Sudan.

Currently, there are three fully-fledged Islamic banks in Kenya. To keep pace with demand, some banks have set up an Islamic banking desk, a specialized operational entity.

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