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By Steve Umidha
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 – in what promises to position the country as a regional Islamic financial Hub.
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.
But the 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.
This follows a report by research firm Moody’s, whose projections hint at a likely boom in the Islamic finance in 2022 as economic recovery accelerates, particularly in the Gulf Cooperation Council (GCC) region and other markets Africa included.
“The economic recovery in key Islamic finance markets will boost credit growth and demand for Shariah-compliant products and we expect Islamic banks’ asset growth to continue to outperform their conventional peers,” said Ashraf Madani, VP-Senior Analyst at Moody’s.
He is, however, adamant that higher oil prices will lead to lower Sukuk issuance this year, largely driven by lower financing needs in the GCC – with the ongoing Russia –Ukraine squabbling to play a key role in oil prices.
But despite amendments to the Public Finance Management Act for instance, which had been anticipated to allow the government to issue Islamic bonds legally known as Sukuk, as an alternative funding source, nothing substantive has been seen to be happening, at least not in the public eye.
Its implementation (Public Finance Management) has already been drafted by the Islamic Finance Project Management Office (PMO), a body setup by the government to coordinate efforts among its regulatory agencies.
“The primary objective is to prepare the groundwork for a sovereign Sukuk but also equally to attract corporate Sukuk from the region,” said Farrukh Raza, managing director of IFAAS, an Islamic finance consultancy which designed the PMO’s framework.
In 2017 for instance, the government commissioned IFAAS to run the PMO, which was working with law firm Simmons & Simmons at the time to help develop Islamic Finance in Kenya in what had offered National treasury high hopes in debuting sale of Sukuk at the time, although national elections delayed those plans.
Amid those plans, the International Monetary Fund (IMF) raised concerns with those plans, and while it acknowledged the rapid growth of Islamic finance in Kenya – the global lender said such a move was happening without adequate protection of depositors as is the case with conventional banking.
“The legal framework exhibits some gaps, prudential frameworks have not been adapted to the specificities of Islamic banking and there are also remaining gaps in the Shariah governance framework, consumer protection framework, liquidity management, resolution and safety nets,” read in part the 2017 IMF report.
Sukuk involves a direct asset ownership interest while bonds are an indirect interest-bearing debt obligation. Trading in Sukuk involves sale of assets while bonds don’t involve any sale of assets.
Global Sukuk issuance fell 12 per cent to $181 billion in 2021 amid lower sovereign funding needs in the GCC region and Indonesia amid higher oil prices and an economic recovery.