Regulator licenses first Sharia-compliant pension scheme

Retirement Benefits Authority Chief Executive Edward Odundo. Photo/FILE
Retirement Benefits Authority Chief Executive Edward Odundo. Photo/FILE  Nation Media Group

The Retirement Benefits Authority (RBA) has licensed Kenya’s first Sharia-compliant pension product offering Muslims an opportunity to build their nest egg.

The regulator has allowed Takaful Insurance of Africa to introduce the pension product targeted at both individual and company sponsored schemes to help the more two million working age Muslims save for their old age.

The pension product will be in line with Sharia laws, which bar funds from investing in assets that pay interest or businesses that offer goods and services considered contrary to Islamic principles like gambling, dealing in beer or cigarettes.

This will allow the growing number of Muslims to save for their retirement and RBA reckons the community savings has been small due to lack of Sharia compliant pension products in the local market.

“This is a huge breakthrough to the Muslim community who for long time have shunned pension schemes due to their profit element,” said RBA chief executive Edward Odundo.


“The scheme will bring an equal playing ground to all its citizens and deepen the retirement benefits sector,” added Dr Odundo.

The decision to provide a Sharia-compliant pension fund is another sign of the growing influence of Islamic law in the country’s finance sector.

A growing number of financial products are being tailored to cater for Kenya’s more than five million Muslims with banking taking the lead.

The insurance market is also seeking a piece of this market with Takaful Insurance of Africa, the country’s sole sharia-compliant underwriter licensed in 2011.

In Kenya, pension funds invest about 60 per cent of their assets in equities or government securities, which limits the participation of fund managers guided by Sharia law since they have an element of interest payment.

The managers had placed Sh184 billion in government securities, which remain a no-go zone since the Central Bank is yet to float Sharia-compliant Treasury bills and bonds in the local money market.

About Sh128 billion is placed in equities.

Promoters of the Sharia compliant pension products reckon that they will focus on cash and property assets classes. Savers will share the profits yearly from the returns on the assets.

The RBA said the this segment of the pension business would boost retirement benefits coverage — the ratio of the working population covered by pension schemes — that stands at less than 20 per cent, way below the global average of 30 per cent.

The savings are critical at a moment when life expectancy among Kenyans is higher with many moving to towns where they lack the larger extended family to rely on.

“People are being alerted to the risks of not putting enough savings in pensions to cater for their retirement,” said Dr Odundo.

“Retirement planning has been neglected because, among other reasons, the specific needs of Muslims have not been addressed.”