Kenya’s emerging landscape of Islamic finance

IFN Country report: Kenya

Mohamed Ebrahim is a partner at Ace Associates,
a member firm of McMillan Woods Global. He can
be contacted at

Kenya is the latest African country to hop onto the bandwagon
of countries wishing to issue Sukuk and create a regional hub
for Islamic financial services. With this in mind, an Islamic
Finance Project Management Office (PMO) has been set up
in December 2015which encompasses the Capital Markets
Authority and other financial services regulators. The PMO
is overseen by the National Treasury with technical and
financial assistance from Financial Sector Deepening Africa
and under the mandate delegated to it by Kenya’s Financial
Sector Regulators Forum.

The PMO is led by Islamic Finance Advisory and Assurance
Services, an international consultancy firm specializing in Islamic
finance, in collaboration with international law firm Simmons &
Simmons. This development is due to Kenya’s thrust to become
an international financial services hub by setting up the Nairobi
International Financial Center.

Furthermore, Nairobi Securities Exchange and NASDAQ Dubai
have signed an MoU to collaborate in establishing a Sukuk
market in Kenya. Through the MoU, both parties will work
together to assist Kenyan entities including the government,
private businesses and government-related firms in issuing and
listing Sukuk. According to a joint statement, the two exchanges
will also jointly promote Islamic capital market products and
exchange information and experiences.

Review of 2017
The Capital Markets Authority (CMA) of Kenya has been admitted
by the Council of the IFSB as an associate member of the board.
This will give the capital markets regulator the capacity and
capability to regulate the growing Islamic finance market, which
has great potential due to a significant Muslim population in
certain areas of the country.
Currently, Kenya has three fully-fledged Islamic banks – First
Community Bank (FCB), Gulf African Bank and DIB Kenya, a
subsidiary of Dubai Islamic Bank – plus five conventional banks
offering Islamic windows; one full insurance company (Takaful of
Africa); two credit unions/savings and credit cooperatives; one
Takaful company; one re-Takaful window; one capital market unit
trust fund as of June 2017 and one non-deposit taking microfinance
institution (Hazina Development Trust). All of these are
still very small compared to the potential.

In terms of the broader Islamic financial services market,
the Central Bank of Kenya has to date licensed two Islamic
banks: Gulf African Bank and FCB, while various other banks
are offering Shariah compliant services and products through
Islamic windows. Similarly, FCB has been authorized to act
as an Islamic insurance (Takaful) broker for General Takaful
products. In addition, Takaful Insurance of Africa, the first
fully Shariah compliant insurance company in Kenya, was
launched in January 2011. In 2014, the launch of the first re-
Takaful insurance (Islamic reinsurance) is expected as Kenya
Reinsurance Corporation ventures into Shariah compliant
business. The local reinsurer already has a presence in West
Africa and Middle East markets and hence has the potential to
provide a regional platform for this product.
Amendments to Finance Act No 15 of 2017
The Finance Act No 15 of 2017 paves the way for the taxation
and regulatory harmonization of Islamic finance with conventional
finance by leveling the playing field that is expected to spur the
issuance of sovereign Sukuk by the government of Kenya, the
pricing of which is important as it will be the benchmark (risk-free)
cost of finance for the issuance of Sukuk by county governments
and corporates. This involved amendments to the Income Tax
Act, Value-Added Tax Act, Public Financial Management Act
(paving the way for the issuance of sovereign and sub-sovereign
Sukuk) and Stamp Duty Act.
Preview of 2018
With a vision themed ‘The heart of African capital markets’, the
Capital Markets Master Plan envisions that the Kenyan capital
markets will become sufficiently deep and dynamic to stimulate
domestic development, while simultaneously providing a gateway
to Middle Africa for regional and international capital flows. By
2023, it is expected that Kenya will have been transformed into
the choice market for domestic, regional and international issuers
and investors looking to invest and realize their investments in
Kenya, within East Africa and across Middle Africa. The market
will be the center of excellence for the real sectors of the economy
in which Kenya already has significant capacity and potential,
including agriculture, infrastructure (including real estate) and
technology, while also leveraging the strength of Kenya’s financial
sector to develop innovative products and services, including
derivatives, asset management and Islamic finance.
In the capital markets, the CMA has also licensed FCB Capital,
which offers Islamic asset management services. In addition,
Genghis Capital has been approved to operate an Islamic
collective investment scheme. The CMA has also introduced
new regulations relating to REITs and these regulations provide
for the creation of Shariah compliant REITs. These developments
have enabled the formerly unbanked Kenyans and specifically the
Muslim communities in the country to have access to financial
services, adding to wealth creation in the economy.
However, to develop a center of excellence in Islamic financial
products underpinned by a formal framework, a concerted
program of regulatory reform and recognition as well as broader
capacity-building will have to be undertaken so that Islamic
financial services become a sector in their own right capable of
attracting international business. To achieve this outcome, the
following actions should be taken:
• Create a regulatory framework for Islamic capital markets
• Develop a separate policy, legislative and regulatory
framework for Islamic products and services
• Leverage existing relationships to develop Islamic finance
expertise, and
• Identify and make policy proposals to facilitate the
development of Islamic finance in the annual Memorandum
of Policy proposals to the National Treasury and implement
programs through industry coordination and relevant

These changes have significantly changed the landscape of
Islamic financial services in Kenya and it is our hope that the
Kenyan public will benefit from them and they are implemented
well by professional service providers.

This article was first published in Islamic Finance news 13 Edition of Annual Reports dated the 27th December 2017


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