Efforts are underway to develop a National Policy on Islamic Finance, moving Kenya closer to being an Islamic Finance Hub in the region.
It will join the ranks of South Africa, Nigeria, and Mauritius, countries that have considerable potential of becoming Islamic finance hubs in the continent.
“It is worth noting that as a country, we have a consensus on where we need to take the country in terms of Islamic Finance. It is highly encouraging that in recognition of efforts made so far, Kenya is now considered among the four countries with considerable potential of becoming regional hubs of Islamic finance activities,” said Wyckliffe Shamiah, Acting CEO of the Capital Markets Authority.
He said institutions have already started establishing important links with international Islamic Finance partners, with Capital Markets Authority and Central Bank Kenya(CBK) becoming members of the Islamic Financial Services Board (IFSB) and the Nairobi Securities Exchange signing an MOU with the National Association of Securities Dealers Automated Quotations (NASDAQ) Dubai.
While Islamic Finance has been in Kenya for more than 17 years following the licensing of First Community Bank (FCB) by the Central Bank of Kenya (CBK) in 2003, the journey towards embracing the other financial subsectors components led by the capital markets picked up pace in December 2015.
This was when the National Treasury with support of Financial Sector Regulators and other international development partners, notably Financial Sector Deepening Africa (FSDA), formed the Project Management Office for Islamic/Participatory Finance (PMO).
This unit has been coordinating a range of interventions to enhance the development of Islamic Finance Markets in Kenya.
“As we move closer to the aspirations for 2023, I am pleased to note that important milestones have been achieved. We are moving closer to realizing this dream,” said Shamiah.
Figures indicate that in 2019, the Islamic Financial Services Industry (IFSI) recorded marked improvement for a third straight year, with its total worth estimated to have risen to $ 2.44 trillion, a growth rate of 11.4% compared to the $ 2.19 trillion recorded in 2018.
“This growth was recorded against adverse geopolitical and economic factors, as well as depreciation of some domestic currencies against the US dollar,” said Shamiah.
He disclosed that the global Islamic Financial Services Industry (IFSI) is currently facing a dual shock of COVID-19 pandemic and volatility in the price of crude oil and it is likely that this will be a challenging year.
“As CMA, we are monitoring these emerging issues and responding proactively and appropriately, as the situation evolves,” said Mr Shamiah.
Within Sub-Saharan Africa, Islamic finance remains small, although it has the potential to grow, given the region’s demographic structure and potential for financial deepening.
Countries that have made significant strides in facilitating this system of finance include Botswana, Kenya, Gambia, Guinea, Liberia, Niger, Nigeria, South Africa, Mauritius, Senegal, and Tanzania.
“Overall, we are confident that we are on the right track, notwithstanding a few bottlenecks while knowing fully well that as a country, we already have a head start in the region,” said Mr Shamiah.
According to a CMA survey conducted on the level of demand for Islamic finance products and services, 81.0% have heard about Islamic finance. 44.4% had used/invested in at least one Islamic finance product while 49.2% were stakeholders in Islamic finance.
The survey also showed that 71.4% of those interviewed were keen on using Islamic capital markets as an alternative system of finance.
“Limited awareness, stakeholder inertia, a less than fully facilitative policy and legal framework, perception problem and stiff competition from conventional finance were cited as the key impediments to growth,” said Mr. Luke Ombaka, CMA Director, Regulator Policy and Strategy during a webinar.