Nairobi — Kenya has been listed as one of the countries with a high potential for Sharia Finance, an Islamic banking model with several restrictions and principles that do not exist in conventional banking like interest fees.
Middle East, Africa, India, and Jersey Finance Director Faizal Bhana said Sub-Saharan Africa's share of global Sukuk issuances is only a mere 2 percent, despite an Islamic population of more than 200 million people.
Sukuk are financial products whose terms and structures comply with Islamic law, with the intention of creating returns like those of conventional fixed-income instruments like bonds.
"When you are coming to Africa, the story is very different. Africa is home to 250 million Muslims in Sub-Saharan Africa. At the moment, the penetration for Sharia compliance finance across the continent is 21 countries providing Islamic Finance services," he said.
Speaking to Capital Business, he revealed that the Islamic Finance industry has a compound annual growth of 11 percent since 2006, with assets worth multi-trillion shillings.
"We need to look to all forms of financing. And Sharia compliance financing is one form and because of its links like sustainability and ethical, for government, it is an easy win," he said.
He said there is a need for regulators to provide enabling legislation for Sharia finance services and more so for sovereign and corporate issuance of Sukuk.
The common practices of Islamic finance and banking came into existence along with the foundation of Islam.
However, the establishment of formal Islamic finance occurred only in the 20th century.
Currently, the Islamic finance sector grows at 15-25 percent per year, while Islamic financial institutions oversee over $2 trillion.
Islamic finance strictly complies with Sharia law. Contemporary Islamic finance is based on a number of prohibitions that are not always illegal in the countries where Islamic financial institutions are operating like paying or charging interest, investing in businesses involved in prohibited activities like gambling.
Due to the number of prohibitions set by Sharia, many conventional investment vehicles such as bonds, options, and derivatives are forbidden in Islamic finance.
The two major investment vehicles in Islamic finance are equities and fixed income instruments.