Kenya: the new gateway for Islamic finance in Africa ?

Interview with Mona DOSHI, Partner of ANJARWALLA & KHANNA, member of ISFIN.

What are the opportunities for Islamic finance to spread in Kenya?

Since the inception of Islamic financing in Kenya in 2008 or thereabouts Islamic financing has seen a considerably fast growth in a relatively short space of time. There are two fully fledged Kenyan banks, namely First Community Bank Limited and Gulf African Bank Limited that exclusively provide Shariah-compliant products and there are several conventional commercial banks that operate windows offering Shariah-compliant products. A number of other conventional banks are in the process of launching Shariah-compliant products. Kenya has a large Islamic community and therefore there is a high demand for Islamic financing. There is therefore a potential and growing market and financial institutions are positioning themselves to take advantage of this.

Last year a Kenyan insurance company was licensed to offer Shariah-compliant insurance services (Takaful) and subsidiaries of two banks have introduced Shariah-compliant mutual funds/unit trusts.  The Capital Markets Authority has introduced new regulations, which will soon be in force, relating to Real Estate Investments Trusts (REIT) and these regulations provide for the creation of Shariah-compliant REITs.  This demonstrates that the financial regulatory sector has recognised the need to expand the financial opportunities and range of Shariah-related products available for investors in Kenya.

The various regulators are working towards harmonising current legislation so that Islamic financing products do not fall foul of the laws. The challenge for banks offering Islamic financing has been the lack of proper legal framework which thus prevented them from providing certain products and also there is ambiguity on the tax treatment of Shariah-compliant financial instruments. The regulatory bodies have identified the challenges and when proper legal framework and policies are in place the country will see a remarkable growth in Islamic financing with a vast range of products on offer.  

Do you see retail products developing as well for the local population?

Banks are already trying to expand the range of Shariah-compliant retail products to attract customers as they recognise the need to devise products which conform to Islamic beliefs and which reach out to a

diverse customer base. As the Islamic community is large, there is a market demand for Islamic financing and thus banks are developing products to meet customer needs as well as offering good competitive services including e-banking and mobile banking services. With proper legal framework in place banks will be able to offer a vast range of products.

Currently a high percentage of customers are the Muslim business community. However banks are advertising to the general public to show the advantages of Islamic banking and that their services and range of Islamic banking products are for everyone. 

As Islamic financing is relatively new in Kenya the population in smaller towns and villages have not really been exposed to Islamic banking. However as time goes by and more range of products are offered to suit low income and middle income classes, banks will need to invest in educating their new target customer base on the benefit of Shariah-compliant banking.

How do you see the developments of Islamic funds structuring in Kenya?

First Community Bank Limited through its investment banking arm FCB Capital set up the pioneer Shariah-compliant mutual fund in Kenya. According to various reports the fund will invest in Kenya and East Africa in money market instruments, equity, structured investments and other collective investment schemes that are Shariah-compliant.

Last month Genghis Capital, a stockbroker and the investment arm of Chase Bank (Kenya) Limited launched the second Shariah-compliant unit trust in Kenya.  Reports indicate that Genghis Capital will use guidelines from Shariah-compliant screening companies to select its investment options. The fund will invest in equity, local and offshore investments.

Funds structuring is in its early stages but there is a huge potential to develop this field, particularly because of its attractiveness to local and overseas Islamic investors who have been unable to invest in non-Shariah compliant investments in Kenya due to their beliefs.  They will now be able to invest in Kenya in Shariah-compliant investments which will be good for the country’s growth. More development in this field is expected as soon as certain amendments are made to the legislation relating to capital markets and banking.

Could you say that Kenya can play a role of gateway for the investors coming  from Asia and the Middle East? Why?

Investors in Asia and Middle East have seen the investment opportunities that Kenya can offer. There is already a fair number of corporates and businessmen from Asia and Middle East having investments in Kenya. For example, some of the shareholders in Gulf African Bank Limited, a Shariah-compliant Kenyan bank, include Istithmar World, the investment arm of the Government of Dubai, Bank Muscat International, a regional bank headquartered in Bahrain, Sheikh Abdullah Mohammed Al Romaizan, an investor from Saudi Arabia, PTA Bank and GulfCap, UAE.

With the development of Shariah-compliant funds structuring and banking, investors from Asia and Middle East will be attracted to invest more in Kenya.

Kenya has the potential of being a financial hub serving the region with a vast array of financial products. It is Kenya’s goal under Vision 2030 to be an international financial centre. With regard to Shariah-compliant products efforts are underway to ensure that proper regulatory and legal framework is in place so that local and overseas-based investors can confidently invest in Kenya. The opportunities are huge and with the development of funds structuring, private equity funds, REIT and other appealing investment products Kenya will have the ability to attract more foreign investment and be the financial centre it strives to be.

CHAMBERS GLOBAL has put it best : “Anjarwalla & Khanna is a top choice for complex transactions due to client confidence in the team’s abilities… Probably the best firm in Nairobi today.”

Contact Information:

Laurent Marliere, ISFIN
+32475422149  
LM@isfin.net  

Patricia Fokuo, Head of Corporate Communications
+254 (0) 20 364 0273  
pf@africalegalnetwork.com  
www.africalegalnetwork.com

Mona Doshi, Partner
+254 (0) 41 231 2848  
mkd@africalegalnetwork.com