5 February 2016

Kenya: The Steady Growth of Islamic Banking in Kenya

While the political and social inter-religious relationships between Kenyans hog all the headlines - and not always for the right reasons - a quiet revolution is taking place in the banking and finance sector; the steady growth of Islamic banking in the country.

And the most noteworthy aspect of it is that the vast majority of the clientele is non-Muslim.

When the concept of Islamic banking, more correctly known as Sharia-compliant finance because its practical application must conform to the requirements of Islamic law, was first introduced in Kenya about 10 years ago, it was taken up by only a handful of Muslim elites. Not any longer.

Last year, for example, the National Bank of Kenya opened 25,000 accounts in its Islamic banking window, National Amanah, almost 19,000 of which are held by non-Muslims.

The bank expects to double that number by the end of this year.

What, exactly, is Islamic banking and how does it differ from conventional banking?


While so many thousands of non-Muslim Kenyans have no qualms operating Sharia-compliant bank accounts, millions of others hesitate to even contemplate going in that direction because of religious sensibilities.

Mainly, it is because of lack of information.

Islamic banking differs from conventional Western-style banking in various aspects.

The main one is that the bank cannot levy interest on a customer's money as this is forbidden in Islam.

Interest, simply, is money earning money of and by itself with no goods and services involved.

According to the Institute of Islamic Banking and Finance, Shariah law stipulates that money by itself has no value and should not be used to get more money in this way.

"The human effort, initiative, and risk involved in a productive venture are more important than the money used to finance it.

Money in Islam is not regarded as an asset from which it is ethically permissible to earn a direct return.

Money tends to be viewed purely as a medium of exchange. Interest can lead to injustice and exploitation in society," it says.

To earn money, goods and services must exchange hands with money only being the medium through which a value is assigned them.


The purpose of Islamic banking is basically the same as that of traditional Western-style banking - the basic goal being earning a profit from the business.

It is in the relationship between the bank and its customers that the difference lies.

In one, the relationship is that of a debtor-creditor while the other is a partnership of profit and loss in the business activities between the parties.

Critically, in Islamic banking, the small print in drafting contracts - translated to mean hidden clauses that a desperate borrower will likely overlook -- is prohibited by Shariah law.

All contracts must be absolutely clear to the parties with the sole purpose of eliminating disputes during the execution of the contracts.

One of the greatest frustrations of Kenyan and foreign business people operating in Kenya is the astronomical cost and length of litigation.

Disputes, especially those to do with land and property ownership, crawl through the law courts sometimes for decades and many people have died without ever coming to any resolution.

A few of Kenya's big banks now have "windows" for Islamic banking.

These are overseen by a committee of Islamic scholars and leaders well regarded in their knowledge of Shariah law and who must be independent from the banks' management.

Their interpretation of the law is binding on the bank and its customers.


On the sidelines of the just-concluded first International Islamic Finance Conference in Nairobi, Treasury Cabinet Secretary Henry Rotich acknowledged the growth of Islamic banking and related financial services in Kenya but noted that enabling legislation was not fully in place to make it grow even faster.

Mr Munir Sheikh Ahmed, whose bank was the conference's title sponsor said: "We are very focused on Islamic banking in Kenya and are greatly encouraged by the rapid uptake of our product by many Kenyans.

They see the value in it. We are looking forward to the Capital Markets Authority developing a policy statement to underpin the legal regime that will govern Islamic finance in Kenya."

Kenya was the first country to introduce Islamic banking in the Eastern and Central African region and continues to lead in its growth.

Its growth mirrors a trend worldwide where it has been growing faster than banking assets as a whole

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