Last week, Hogan Lovells joined representatives of the private and public sector as well as government officials at the Islamic Finance News Kenya Forum 2017. The event was organised by Red Money Events, in collaboration with a host of partners such as Islamic Corporation for the Development of the Private Sector (ICD), a long-term client of the firm. Held at Nairobi’s Villa Rosa Kempinsky, the forum was a day packed with interesting panel discussions and talks on how to enhance the development of Islamic finance in East Africa.
Imran moderated a panel discussion on how East Africa can find its niche in the global Islamic finance landscape. For this, he was joined by Abdirahman Mohamed Hashi, representing the Ministry of Fisheries and Marine Resources, Federal Republic of Somalia, Hassan Yusuf, the CEO, International Bank of Somalia and Salah Babale, Division Head, Islamic Corporation for the Development of the Private Sector.
The question of whether Kenya has the potential to become the region’s leader in Islamic finance was frequently highlighted in different discussions at the forum. And in all discussions, the answer was a resounding yes, but why?
There are many reasons for this optimism: favourable policies that support the growth of Islamic finance such as the Finance Bill 2017, which signals appetite for sharia compliant financing options at a national level and the recent exemption for Islamic financiers from paying stamp duty, a move that is aimed at offering alternative sources of funding for long-term projects. Furthermore, the world’s first Islamic bank, Dubai Islamic Bank, this year commenced operations in Kenya after receiving its license from the Central Bank of Kenya.
The demand for sharia compliant financing is growing rapidly and Kenya is well poised to leverage this development. Other factors such as the country’s growing economy and well-developed legal systems place a further demand for Kenya to become a regional lead for Islamic financing products and services.
So, why haven’t we seen faster growth in Islamic banking in Kenya’s financial sector?
Enabling policy environment
While positive steps have been made to drive the adoption of Islamic finance in Kenya, it was agreed that much more needs to be done to develop a favourable regulatory framework to realise the country’s potential.
When a country doesn’t have Islamic finance legislation like Kenya, changes that combine Islamic finance laws with Kenyan banking laws need to be made. Several West African nations are taking this approach and are working with institutions such as ICD to amend current banking laws to encourage adoption of Islamic finance.
Education
Education is a key requirement to raise awareness of the differences between conventional banking and Islamic finance solutions and the benefits for consumers. Furthermore, the human capital requirement to move Islamic finance forward cannot be overemphasized. Industry-wide training is required to provide conventional bankers with the necessary information on the requirements of Islamic banking.
Kenya is moving in the right direction with regards to adopting Islamic finance. The opportunities in Islamic finance are great, including: issuing its first sovereign sukuk, corporate financing, including cross-border transactions and more. There is also an opportunity to structure capital markets to enhance capacity for Sharia compliant products in the country. This all points to a growing movement towards Islamic finance across the continent and particularly East Africa, with Kenya taking a lead.
