Why Islamic finance is yet to realise its full potential in Kenya
Customers at a banking hall in Nairobi. FILE PHOTO | NMG
What you need to know:
An unregulated and unstructured difference in Shariah opinions only serves to confuse the industry stakeholders since it often generates more heat than light.
Kenya’s Islamic finance industry is over a decade old but is yet to realize its full potential and make the desired impact in promoting linkages between financing and the real economy.
The essence of Shariah compliant financing models is to promote fairness and equity in transactions, avoidance of interest (Riba), abstaining from non-permissible activities (haram) as well as reward sharing through transparent processes.
Barclays Bank of Kenya was the first bank to introduce Shariah compliant banking products on a window basis. Kenya Commercial Bank followed in 2006 before the fully-fledged banks, First Community Bank and Gulf African Bank entered the local market.
Takaful Insurance Africa, the first Shariah compliant Takaful operator was also licensed thereafter. A subsidiary of Dubai Islamic bank commenced operations in 2017 in Nairobi and Mombasa; and Savings and Credit Cooperative Organisations (Saccos) have also launched Shariah compliant products in response to the growing demands from members.
With the phenomenal growth in the number of Islamic finance service providers, we are yet to see a bigger market share for them. The uptake of Shariah compliant financial products has been adversely affected by a number of factors that include but not limited to the absence of supportive legal and regulatory infrastructure, lack of skilled Islamic finance professionals, poor perception and lack of awareness.
One other challenge that continues to hamper the further growth of Islamic finance industry in Kenya is lack of harmonisation of the Shariah standards that indeed forms the very basis of Shariah compliance of the financial transactions.
At the global level, we have the Accounting and Auditing Organisations of Islamic financial Institutions (AAOIFI), based in Bahrain that seeks to harmonise Shariah standards and practices across the globe.
In the absence of a robust regulatory environment that recognises the unique requirements and practices of Islamic finance in Kenya, we are bound to experience challenges in appreciating the role of the Shariah scholars and how to facilitate them to bridge the gaps in their Shariah opinions.
The Shariah scholars have the divine duty to interpret the scriptures and offer guidance to the members of the public so as to ensure alignment between the conduct of the individuals and the expectations of Islam.
These scholars serve to approve financial products, offer advisory services, train the stakeholders, resolve Shariah commercial disputes and exercise oversight on the implementation of their edicts.
In this day and age, where technology widens the geographical reach of the masses, there is need to have well informed and empowered scholars who have the trust and confidence of the customers at all times.
An unregulated and unstructured difference in Shariah opinions only serves to confuse the industry stakeholders since it often generates more heat than light.
It is my humble opinion that the Industry stakeholders collaborate to carry out public sensitization programmes for the purpose of managing the poor perception stemming from ignorance about the industry.
As a matter of urgency the stakeholders need to undertake a comprehensive training of the Shariah scholars and inculcate in them the need to have structured mechanisms to manage differences of opinion and gather knowledge as well as information from some of the renowned scholars in Islamic finance at the global level.
The industry players can work together and facilitate the professional development and enhance public awareness in Islamic finance.
Well co-ordinated engagements between the industry stakeholders need to be encouraged to promote as well as sustain an enabling environment for the further growth and development of the industry.
Aqeel Consulting Kimited takes the initiative to organise a technical workshop for the Shariah scholars in a bid to deepen their knowledge on Shariah compliance and diversity in Shariah opinions in the finance matters. This event shall come up on July 11 -12, 2018 at the Windsor Golf Hotel and Country Club.
The organisation of the scholars’ workshop which will be preceded by a two- day training on Takaful insurance at the Kenya school of Monetary studies from July 9, 2018 was made possible by the sponsorship and support of the industry players and regulators.
It is worthwhile for such initiatives be sustained and an assessment of its impact undertaken as often as is practicable to ensure continuous improvements in industry practice, shariah compliance and the market needs.
Collaboration between the industry players, regulators and institutions of higher learning among others be forged for the purpose of demystifying Islamic finance for the members of the public and consolidating the gains made so far in the industry which could easily be reversed by sheer ignorance and misinformation.
