How Islamic finance players can win trust of consumers

A rapid growth of Islamic finance in Kenya has continued to raise questions over its benefits to society as well as its possible impact on the stability of the country’s financial services sector.

These concerns have made it imperative that industry stakeholders address the challenges that could undermine the confidence and trust of the public in the Shariah-compliant products.

That journey must begin with the creation of a platform that has on board Shariah scholars, policy makers, and the market players to monitor the development of the industry with a view to addressing the gaps that emerge from time to time.

Islamic finance being a fairly new product for Kenya, it would be prudent to put in place a robust mechanism that promotes public education, develop human capacity as well as build the necessary infrastructure to support faster growth.

Most of the Islamic financial service providers in Kenya fully appreciate the requirements of having sound Shariah practice like the institution of the Shariah governance framework, the appropriate information technology, availability of skilled and committed staff, independent Shariah scholars as well as policy and regulatory frameworks in line with global best practice.

What is lacking is the right platform where stakeholders can share insights on the needs of Islamic finance and design appropriate interventions as and when necessary so as to consolidate the gains so far made and scale up to the next level.

Kenya need not reinvent the wheel in getting the development of Islamic finance right. All that the country needs is to align itself with some of the well-established organisations such as the Kuala Lampur-based Islamic financial services board (IFSB) and the Accounting and Auditing Organisation of the Islamic Financial Institutions (AAOIFI) based in Manama, Bahrain.

The Islamic Research and Training Institute (IRTI) in Jeddah, Saudi Arabia has also contributed immensely to the formulation of policies, regulations, guidelines and standards to safeguard and promote the integrity of Islamic finance.

All these global bodies do offer a great deal of support to help to the regulators, market players and policy makers harmonise standards and practice of Islamic finance across various jurisdictions.

An immediate area of concern for the stakeholders should be to develop the human capital. Without the requisite skills and knowledge in Islamic finance, the regulators and market players would be groping in the dark — a position that will definitely affect the stability and growth of the sector.

For instance, the regulators should be having a responsive regulatory, supervisory frameworks and policies, which suit the local environment. These frameworks cannot be developed without competent people.

Professional bodies like the Law Society of Kenya, the Institute of Chartered Accountants of Kenya, the Kenya Institute of Bankers as well as the local universities should be sensitised on the need to develop expertise and have curricula in emerging areas like Islamic finance and position themselves to offer support where and when needed.

The Judiciary should by now be proactive enough to develop the required skills in handling commercial disputes involving parties in Shariah-compliant structured contracts and keenly follow emerging jurisprudence at the global level.

The Islamic banking sector does command a relatively huge share of both the global and local Islamic finance industry.

This in essence should mean the Central Bank of Kenya, the regulator of banks, the Islamic banks as well as the Kenya Bankers Association ought to collaborate more and take a strategic interest in developing standards and regulation to afford the consumers of the Islamic finance products the same protection as those of the conventional finance ones.

Consumer education and the process of getting feedback on consumer experience should be embraced and best practice institutionalised.

The recent IMF report on the status of the Islamic banking in Kenya should not be seen to discourage industry stakeholders but rather a wake-up call to them to be proactive in properly streamlining the industry and integrating it into the financial ecosystem.

Due attention should be given to good governance, risk management, Shariah compliance, consumer protection and adherence to regulatory and legal frameworks as well as global best practice.

An association of Islamic financial service providers could be incorporated to link all the players in the industry and work on the self-regulation of the service providers, engage in research and further development of the industry and lobby for the passage or amendment of the laws necessary for mainstreaming Islamic finance.

The risk and cost of inaction by the stakeholders shall always be greater than the risk and cost of actions taken to properly design the supportive infrastructure and institutional framework to enable Islamic finance make the desired impact and earn the confidence and trust of the consumers.