Businesses & Financial News

Kenya inching closer to ‘Islamic finance hub’ status

By Steve Umidha

Kenya could soon obtain an enviable status as a regional dynamo in Islamic finance after mobile network operator Safaricom Plc. and Gulf African Bank (GAB) Wednesday unveiled the market’s first Shariah compliant mobile financing service amid a growing need for digital financial inclusion.

Sanctified Pesa Halal, is a financial mode of saving that ensures Muslims and non-Muslim customers alike, have access to micro-savings and investment solution which adheres to Islamic laws on earning halal profits. Halal means ‘lawful.’

According to GAB’s Chief executive Abdalla Abdulkhalik, the service will see its users “receive the amount requested in full with a repayment period of 30 days at 5 percent commodity Murabaha margin.”

“Our current strategy is focused on digitization for financial inclusion. Our aim is to provide instantaneous access to interest-free credit through Halal Pesa,” noted Abdulkhalik.

The concept – according to its creators, will cater for investors who want to follow Islamic rules on avoiding direct payment or earning of interest, which are viewed as usury or ‘haram’ under Islamic law, and as such not limited to only Muslim faithfuls.

Murabaha is a financial contract that is also referred to as cost-plus financing which includes a profit markup in the transaction rather than interest. A seller and buyer agree to the cost and the markup, which are then paid in installments.

The new move comes amid mounting clamor for financial inclusion among the unbanked population in an era where mobile money transactions are fast becoming our daily mode of payments.

In fact since the Coronavirus pandemic erupted in March 2020, statistics show that cash deposits held by mobile money transfer providers M-Pesa, Airtel Money and T-Kash staggered at over Sh1.25 Trillion in just three months to December last year, according recent industry data by the Communications Authority of Kenya (CA).

The shift to mobile money transactions was attributed to the loosening of several restrictions introduced in March 2020 to slow the spread of the Covid-19 pandemic – which cut down hard cash handling among Kenyans with nearly all businesses and public offices accepting such outflows.

It is a trend which Safaricom’s Chief executive yesterday said would sustain. “We remain keen on partnerships that enable us to provide a wide variety of financial solutions that meet the diversified needs of our customers, further broadening financial inclusion to ensure that we leave no one behind,” he said.

The deal further heightens the ever-lingering longing by the government to prioritize Islamic financing models to finance its mega development projects with Islamic bonds or Sukuk often on the lips of State officials.

Industry trends show that the local market has been positioning itself as a hub for Islamic finance, aiming to lead in the region of East Africa and across Middle Africa.

But previous attempts have seen such plans hit the wall. Indeed, Kenya is yet to make public the details of its National Policy on Islamic Finance, two years after plans to develop the critical document were mooted.

With two fully fledged Islamic banks and several other conventional banks extending Islamic windows offering Islamic banking products and services, Kenya is seen as one of key markets alongside South Africa, Nigeria, and Mauritius to have a considerable potential of becoming Islamic finance influence in the continent.

In 2019, Vodacom Tanzania partnered with Amana Bank to launch a similar product, also bearing a similar name, Halal-Pesa.

But Kenya’s slow pace in developing the National Policy on Islamic Finance as well as lack of information on the same, are believed to be some of the reasons the EAC super power could lose out on the expected boom in the sub sector.

“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,” Wyckliffe Shamiah, Chief executive of the Capital Markets Authority (CMA) was quoted as saying in 2020.

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