First Community Bank allowed to undertake land deals

First Community Bank (FCB), a Sharia-compliant lender, has been granted exemption from some provisions of the Banking Act allowing it to carry out land transactions in the next five years.

The Banking Act prohits Kenyan lenders from “purchasing or acquiring or holding any land or any interest or right therein except such land or interest as may be reasonably necessary for the purpose of conducting its business, or for housing or providing amenities for its staff, where the total amount of such investment does not exceed such proportion of its core capital as the Central Bank may prescribe.”

Under Sharia banking, a lender is not supposed to earn or charge interest on loans and relies on sharing profit to conduct business. It may, however, co-own property or a business in the process of sharing profits, which requires it to request the Treasury for exemptions.

“In exercise of the powers conferred by section 53 of the Banking Act, the Cabinet Secretary for the National Treasury exempts First Community Bank Limited, from the provisions of section 12 (a) and (c) for a period of five (5) years, 2013,” said Treasury secretary Henry Rotich in the notice dated September 2, 2013.

Section 12 (c) of the Act, from which the bank was also exempted, prohibits lenders from “engaging, alone or with others, in wholesale or retail trade, including the import or export trade, except in the course of the satisfaction of debts due to it.”

FCB’s management had not responded to a request for comment by the time of going to press.

The lender is among the new Sharia-compliant banks that have been licensed in the past six years with the intention of providing finance that is compatible with Islamic principles.

Already, infrastructure bonds called sukuk have been launched in the Kenyan market and the Central Bank of Kenya has indicated it is planning to have Sharia-compatible Treasury bills in the money market.

CBK governor Njuguna Ndung’u revealed in June that FCB and Gulf African Bank (GAB) had participated in the sukuk component of infrastructure bonds issued by the monetary authority on behalf of the Kenyan government, investing Sh500 million last year.