Wooing the non-Muslim customer


What started off as an opportunity to cater for a unique market has now grown and targeting the non-Muslim consumer. PHOTO | FILE


  • You do not have to be a Muslim to enjoy Islamic finance.

From allowing Muslim women to bank without mingling with unrelated men to enjoying shariah-compliant mortgages, retirement products and insurance, Islamic finance in Kenya is picking up fast.

What started off as an opportunity to cater for a unique market has now grown and targeting the non-Muslim consumer.

Sheikh Juma Makomba, the Sharia compliance manager at Takaful Insurance of Africa, said you do not have to be a Muslim to enjoy Islamic finance.

“It is just a perception that when you go into an Islamic financial institution it is not your place. Buying an Islamic financial product does not make you Muslim neither does it convert you to Islam,” said Sheikh Makomba.

He said about 20 per cent of their clients are non-Muslims, adding that ‘‘if you go to Gulf African Bank, they will tell you the same.”

Lamin Manjang, Standard Chartered Kenya chief executive, recently said Islamic finance is the fastest growing area in global finance. He said that it should be viewed as a value proposition open to all customers irrespective of if the customer is Muslim.

What is Shariah-compliant?

The trick lies in demystifying the products offered by Islamic financial institutions.

A financial product offered on Islamic law is like any other apart from rules and guidelines that have to be followed.

‘‘For Islamic products, they shouldn’t be interest based or in industries that are dealing with anything harmful to human beings, both financially and healthwise such as alcohol, pork, illegal arms and illegal drugs,” said Sheikh Makomba.

However, the growing products, Islamic finance is still at an infancy, estimated at two per cent, according to industry statistics.

“We have not even scratched the surface of the Islamic community. It is huge only that its slow in comparison with the industry. If every Muslim was to insure with us we would be billionaires by now approaching Sh10 billion,” said Mohamud Abdiaziz, the assistant general manager at Takaful Insurance of Africa.

Some of the shariah-compliant investments you can opt for in Kenya include:

Islamic mortgages

An Islamic mortgage can be offered in a number of ways. The bank could buy the house at principle and then sell it at principle plus profit to the client. This is called a cost plus profit kind of a sale called murâbahah.

A murâbahah contract is prominent in asset financing where an institution will buy the asset and sell it to the customer at principal plus profit.

Another way is through leasing. The property is fully bought by the bank and not sold directly to the client but leased. The client pays rent on the property until such a time the bank would have earned its principle and revenue on the rental.

“Even after this time the bank still owns the property because it was a leasing contract (Ijarah), so at the end of the leasing period, the bank will either sell the property to the client at a token price or it will give it as a gift. Since the bank has already made its principal and profit from the rent,” Sheikh Makomba said.

Another product is where the bank and client own property in partnership and over the period of financing, the bank sells its share gradually to the client.

It is negotiated as a diminishing partnership where both the bank and client contribute to the cost price and the bank will put a margin over its share and sell it over a period of time.

Savings accounts

For savings, a customer comes to the bank making a deposit and asks the bank to invest the funds on their behalf.

Through this the client will earn some income from the investment the bank does with their money.

With current accounts where the customer is not expecting to earn anything from the accounts, the Islamic financial institutions will operate them in form of a loan; not the bank giving the client a loan but the client giving the bank a loan and this loan is interest-free.

“The bank receives the loan and performs a fiduciary role over the money just to guarantee the funds are going to be there and at any time the client needs the funds they will be able to access it,” Sheikh Makomba said.

Takaful insurance

The Takaful insurance contract is different from the conventional insurance where the insurer receives the premiums and keeps them hoping risk does not occur or claims made.

For Takaful, one has to have a Wakalah (power of attorney), whereby you have the minimums brought in and distributed between the risk fund and operations fund administration.

You can also have the shariah-compliant insurance, where one comes in as the working partner and the other as an investor and you put the money in a commercial venture where the customer gets paid a pre-agreed rate.

Women-only banks

Islamic banking is getting exciting products that are unavailable in the conventional system which offer limitless opportunity.

Women, for instance, who have had it difficult in getting access to finances because many lack tangible collateral now have options.

Najma Jabri, the head of Women Banking at Gulf African Bank, said only about one per cent of women own property they can put as collateral.

Gulf African Bank under the women-only package has taken alternatives to ensure more of them access funds for business, she said.

“Women can offer jewellery, their stock and even guarantors through their ‘chamas’ as a way of securing credit,” she said during the Women in Business Conference in Nairobi.

Gulf African Bank even has two women-only branches in Eastleigh, Nairobi and Mombasa and offers an express counter for women in most of their branches to make it more conducive for women to access banking services.

It is also open to all women irrespective of their religion.

Islamic real estate investments

Mohamed Ebrahim of Ace Financial Advisory, an Islamic financial services firm, said Muslim investors prefer real and tangible assets investments given their natural fit with the Islamic finance principles which advocate for link between the economy and the financial sector.

For instance, an Islamic REIT, a type of security that invests in real estate through property or mortgages and often trades on the stock exchange, prohibits operations including conventional banking services, gambling and casino operations, sale of liquor and non-halal food items among others.

In case of mixed tenants (operating Shariah compliant and non-compliant activities), the proportion of rentals from the operation of non-permissible activities must not exceed 20 per cent.

Islamic bond

Kenya is looking to go for an Islamic bond, the Sukuk, and there should be no reason why every other Kenyan should not be lining up for a facility in this nascent market.

The Global Islamic Economy survey estimates that Islamic banking assets are projected to reach trillions of shillings in a few years.

The financial segment has been trying to tap the potential presented by an estimated 4.3 million Kenyan Muslims, roughly 11 per cent of the population.

Over the years, Islamic financial market has become broader, with Gulf African Bank and First Community Bank opening doors.

National Bank opened the Amanah, the Kenya Commercial Bank now has the Sahl, Chase Bank went with Imana while StanChart opened Saadiq.

Last year, the National Bank of Kenya opened 25,000 accounts in its Islamic banking window, National Amanah, almost 19,000 of which are held by non-Muslims.

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