Banks venture into insurance as faithful seek new investment avenues

First Community Bank chief executive officer Nathif Adam. Photo/FILE
First Community Bank chief executive officer Nathif Adam. Photo/FILE 

Investors are rolling out more Sharia-compliant financial services into the Kenyan market, betting on the growth of the Muslim population to boost the uptake of Islamic financial services that began five years back with simple current accounts.

According to the 2009 census results Kenya has 4.3 million Muslims.

The growth in numbers coincides with a string of new financial service investments that target the faithful.

First Community Bank last week diversified into Islamic insurance — also known as takaful — at an initial cost of Sh20 million.

The bank’s managing director, Mr Nathif Adam, said the entry into takaful is a first step towards offering integrated Islamic financial services, a strategy that has been echoed by Gulf African Bank that also announced plans to venture into other financial services in the near term.


“We have acquired a license from the Capital Markets authority that will allow us to roll out and participate in corporate consulting, private equity, investment banking, venture capital and bonds that are in line with the Sharia code,” Mr Adam said.

Mr Suleiman Shahbal, the Chairman of GulfCap Investments – the principal shareholder in Gulf African Bank – also announced the firm will soon deepen its investments in the East African region in real estate, private equity, and corporate finance, with Nairobi chosen to head the expanded operations.

The two Islamic Banks – which started operations about two years ago –are showing signs of breaking even, signalling the viability of the Sharia products.

“Our balance sheet has grown to stand at Sh5 billion as of the last quarter and we look forward to breaking even very soon,” Mr Adam said.

After  a two-year loss making streak, Gulf African Bank registered 127 per cent growth to post a pre-tax profit of Sh25 million in the three months to March, marking its debut in the profit-making territory since it began operations over two years ago.

“It is an important step for them. Through facilitating access to Islamic financial services, they will be able to extend their growth in that niche. In general, there is a pent-up demand for variety of financial services in the market,” Mr Eric Musau, an analyst at African Alliance said.

Other conventional banks have also developed Sharia-compliant current accounts while conventional insurers are eyeing new opportunities in Sharia-compliant products.

Mr Adam told Business Daily the bank has signed up one conventional insurer and will soon rope in more underwriters to act as agents for its takaful offerings.

The two firms said they are targeting general insurance focusing on property and motor covers.

The choice of the covers are seen as targeting areas where affluent and middle-class Muslims have shown particular strength in.

The Somali community, virtually all Muslim, has for instance made massive investments in real estate in Nairobi and Mombasa.

Analysts say the general covers are more suitable for takaful owing to their short term nature as opposed to the long term life covers.

Under takaful, people seeking insurance cover pay contributions to a collective fund from which payments will be made to members who suffer from the risks covered.

But unlike conventional insurance practice, any residual cash after all payments have been made in the financial year is paid out to members as profit based on the ratio of contributions.

The Islamic banks have been in talks with the Central Bank to issue Sharia-compliant government securities known as Sukuk which they say will help boost their profitability.

For the government, the issuing of sukuks should diversify the base of investors bidding for government debt papers to tap into the cash flush investors from the East who have shown increased interest in Africa as an investment destination.