Kenya’s Parliament is seeking to amend the Central Bank Act to allow the establishment of a Shariah-compliant monetary policy.
The Central Bank (Amendment) Bill, 2023, proposes the institution of a CBK Advisory Council responsible for monetary decisions and regulation of Shariah banks, differentiating them from conventional banks.
The Central Bank of Kenya (Amendment) Bill 2023 proposes the establishment of a Shari'ah Advisory Council responsible for formulating & monitoring policy to regulate the licensing & supervision of Islamic banks & other Islamic Financial institutions. pic.twitter.com/m3SSzrL91G
— Julians Amboko (@AmbokoJH) July 25, 2023
If Shariah-compliant monetary policy is adopted, CBK will supervise a system made up of both interest-based banking and interest-free systems.
Regulation by the apex bank will also allow Islamic-affiliated banks and services to create an account with the CBK where their interest rates can be monitored just like those of other conventional banks.
The advisory council will be responsible for formulating and monitoring policies to regulate the licensing and supervision of Islamic banks and Islamic institutions.
Most conventional banks offering Islamic financial services currently have advisory units based on Islamic beliefs, but there is no legal framework, leaving room for deposits from non-Islamic customers to be used to service Shariah borrowers.
The bill has been sponsored by Wajir West legislator Yusuf Farah.
“Muslims worry they don’t want to borrow from conventional account because the central bank can only lend with interest. The money itself that is supposed to be borrowed is also not halal (not permissible in Islam). Liquidation is not an issue,” Farah told the parliamentary budget office (PBO).
“The objective of this Bill is to address the need for a regulatory framework based on the fact that international banks offering Islamic products are keen on breaking into the financial market in Kenya in order to exploit the full potential of Islamic banking,” Farah said.
Kenya’s Islamic finance industry is the most developed in the East African region, improving institutions as well as products in banking, insurance (Takaful), pensions, microfinance, and investment.
Currently, Islamic financing in the country is regulated by the central bank under Chapter 488 of the Banking Act.