Market Review gif


Islamic Finance Prospects in Kenya


market. Kenya desires to be the Islamic financial hub of East Africa and with further growth and development the country may realise its ambition.


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The 2009 Kenyan census reported that there were 4.3 million Muslim in Kenya, 11% of the population. This fig- ure is, however, disputed by Muslim leaders in the country who claim the figure is much higher; perhaps even 30% of the total population.


Whatever the real figure is, conventional financial institu- tions and Islamic banks have seen an opportunity, helping to finance businesses catering to the Islamic market, such as restaurants, hotels, food stores and halal slaughter houses, as well as developing Shari’ah compliant wealth management and investment products targeted at some of the wealthy Somali immigrants.


Barclays were the first to test the water in 2005 and there are now eight financial institutions offering Shari’ah com- pliant products in Kenya. Among them are two Islamic banks licensed by the Central Bank of Kenya (CBK) in 2007, First Community Bank and the Gulf African Bank, which opened for business in 2008.


Unlike the Islamic windows of conventional banks, these two organisations offer retail banking services through a currently limited, but growing network of branches. By mid


he Islamic financial industry is expected to reach over $2 trillion dollars by 2012 and many coun- tries such as Kenya with a prominent Muslim presence want to tap into the Shariah compliant


2010 they controlled 0.8% and 1% of banking assets in Kenya according to the Central Bank of Kenya. Currently one of the gaps in the Kenyan market is in Shariah-com- pliant investment products. FCB Capital obviously intend to address that gap, but they are not alone.


ApexAfrica Capital, the third largest member of the Nai- robi Stock Exchange is also working to develop Shari’ah- compliant investment products, including unit trusts, which are particularly popular in Kenya.


The Kenyan Capital Markets Authority is in the process of setting up a regulatory framework to govern this nascent market.


There may be challenges ahead for the Kenyan prospects of becoming an Islamic financial hub as many investors look to stability and transparency which the Kenyan finan- cial industry needs to exhibit before it canfully develop into an Islamic financial portal.


Currently the law in Kenya requires the banks to pay inter- est which is prohibited under Shariah law. However chang- es to the banking act can further help Islamic banks to go through alternative means to ensure that the transactions and investments are Shariah compliant.


Professor Njuguna Ndung’u, Governor of the Central Bank of Kenya in a paper delivered at a conference in Nairobi in May 2010, asserted that Kenya had the potential to become the regional Islamic finance hub.


gif 2011 February Global Islamic Finance 75


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