NAIROBI – From humble beginnings, the Islamic financial institutions have been growing rapidly over the past years, attracting increasing attention and interest from both Muslims and non-Muslims, many of whom are being exposed to its principles and practice for the first time.
“Islamic banks have now enabled Muslims and other Kenyans to benefit from banking services without violating the principles of their faith,” Prof. Njuguna Ndung'u, the Governor of the Central Bank of Kenya, told OnIslam.net.
“The presence of the banks has also made possible the pooling of huge resources for investments to benefit Kenyans,” he added.
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Islamic banking was introduced in 2008 in Kenya when the first two Islamic Banks, Community Bank (FCB) and Gulf African Bank (GAB), opened their doors.
Islamic finance has evolved rapidly into insurance, investments, and pensions which are in line with the Islamic law that forbids dealing in interest or usury.
Today, these two banks handle millions of dollars worth of financial muscle, representing the growing strength of Islamic ideas of economics in Kenya.
In March last year, the World Bank through its investment arm the International Finance Corporation invested US$5million dollars into GAB to strengthen its capacity to support small and medfium-sized businesses.
"The investment was a demonstration of confidence in the operations and future of Islamic banking in Kenya," says GAB CEO Abdalla Abdulkhalik.
He adds that owing to the success of the two Islamic Banks in terms of attracting deposits from the Muslim community, other commercial banks have quickly opened up Islamic segments to compete for the Muslim wallets.
Currently, 10 out of the 42 commercial Banks in Kenya have created such segments to cater for what they call the “Muslim niche segment."
There are nearly ten million Muslims in Kenya, which has a population of 36 million.
Islam forbids Muslims from usury, receiving or paying interest on loans.
Transactions by Islamic banks must be backed by real assets, not shady repackaged subprime mortgages.
Shari`ah-compliant financing deals resemble lease-to-own arrangements, layaway plans, joint purchase and sale agreements, or partnerships.
Many Kenyans, especially non-Muslims who pay monthly contributions to their insurance companies, were jolted with pleasant surprise when they learnt about the Islamic insurance (or Takaful) model, where they could receive a share of profits the firm makes.
“In conventional Insurance, the fat profits made by insurance companies are taken by the shareholders of those companies," says Ahmed Bashir, CEO of Takaful Insurance of Africa, the only islamic insurance firm operating in Kenya.
“But in Islamic insurance, the profits are shared between the company's owners and the customers who purchase insurance,” he added.
According to Mr. Bashir, one of the main challenges facing Islamic finance in Kenya is lack of Shari`ah-compliant investment instruments in the financial markets, such as shares, stocks and bonds.
The huge resources that are being gathered by the Islamic banks and insurance cannot be invested in the Nairobi Securities Exchange or in government bonds, all which are interest-based.
"We are also not allowed to invest the money outside the country where Islamic investment instruments are available and well-developed such as in the Middle-East and Malaysia," he says.
“That's why we are lobbying the government to create space in the financial sector for Islamic finance.”
So far, the response has been good with the regulator agreeing to form a National Shari`ah Advisory Board to guide the process of creating a space for non-interest based investment options.
In addition, plans are afoot to launch the first pension scheme in line with Islamic principles by mid this year.
Current pension scheme invest money into sectors involving interest, alcohol, gambling and other things that Islam prohibits.
Islamic Finance has gained such strength in Kenya that the Central Bank of Kenya, the state Banking regulator, has launched international certificate training in the field, to produce the human resources needed to support the fast-growing sector.
The Bank’s training arm, the Kenya School of Monetary Studies, will offer the training in partnership with the International Center for Education in Islamic Finance (INCEIF).
“We feel there is no better time to offer a course that will cover not just the conceptual apparatus, but the various opportunities and challenges that face Islamic finance, whose growth shows no signs of abating,” said Central Bank of Kenya (CBK) Governor Njuguna Ndung’u recently.
Overall, there is developing consensus that Islamic finance has lots of potential to unlock economic value in Kenya and other parts of the world as its principles and best practices are implemented.
Reproduced with permission from OnIslam.net - Read full article here
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