Central Bank of Kenya data shows that Gulf African Bank and First Community Bank, both of them exclusively Shariah- compliant banks, had 58,101 deposit accounts and 2,609 loan accounts as at the end of December, 2010, four years after their licensing. Photo/FILE
Islamic banks now control 0.9 per cent of total accounts, indicating increased penetration of financial services to a segment of the population that was hitherto excluded from the system due to its religious beliefs.
Central Bank of Kenya data shows that Gulf African Bank and First Community Bank, both of them exclusively Shariah-compliant banks, had 58,101 deposit accounts and 2,609 loan accounts as at the end of December 2010, four years after their licensing.
“The uptake of Islamic banking is projected to grow exponentially in sub-Saharan Africa. Kenya is among African countries that are taking up the lead in shariah compliant banking services,” said Professor Njuguna Ndung’u, governor of the Central Bank of Kenya.
He said Islamic banking was helping to push the regulators’ agenda of more financial inclusion, noting that before emergence of the Shariah-compliant products some people had been locked out of the banking system due to their religious beliefs.
The Islamic lenders had gross assets of Sh16.5 billion, net loans and advances of Sh9.2 billion and deposits of Sh13.76 billion.
The two banks have recorded losses since they began operations in 2007 but Gulf African Bank has announced its maiden positive earning posting a Sh73.9 million profit after tax in 2010.
First Community Bank is expected to announce its results by the end of this week.
The uptake of Islamic banking products has led several conventional banks to introduce shariah-compliant products as part of their product range.
Barclays Bank of Kenya, Chase Bank, and KCB have shariah compliant products through which they hope to tap into the estimated nine million Muslim population.
Prof Ndung’u said there were several challenges facing Islamic banking in Kenya which include lack of shariah compliant investment vehicles and lack of awareness of existence of the products.
The chairman of Gulf African Bank, Suleiman bin Shahbal, said that there was a misconception that the products were for Muslims only.
“We serve even non-Muslim customers but I think we are partly to blame because of the way we name our products—takaful, annisaa, hajj—we should be more liberal,” said Mr Shahbal.
To accommodate the shariah- compliant investment vehicles like unit trusts and corporate bonds-sukuks, the government has amended the finance act to allow the Central Bank as the government’s fiscal agent to recognise the payment of a “return” rather than “interest” on government securities.
“This amendment opens up the spectrum of Sharia-compliant investments in the country” said Prof. Ndungu.
The move to entrench Sukuk bonds and bills in the law is seen as a push by CBK to tap the increasing amount of cash flowing into Africa from the Gulf region which is deemed to hold excess capital.
“The Sukuk market is huge with over 1.6 trillion dollars worldwide; why does that money have to go to Malaysia and other countries and not Kenya?” said Mr Shahbal.
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