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Monday, 10 November 2008

Islamic banking in Kenya - a safe business amid credit turmoil

November 10, 2008: As the ripple effects of the Wall Street turmoil continue to knock consumer confidence in interest- based banking, more and more Kenyans are turning to the relatively new Islamic banking concept as the safe haven for their savings.

On their part, banks, including those known more for their conventional banking products are slowly turning their attention to the more conservative Sharia banking to stop their customers from switching loyalties.

On Friday, the First Community Bank, the first fully Sharia-compliant institution to be registered by the Central Bank of Kenya (CBK) to roll out Islamic banking products in the country confirmed the current windfall being enjoyed by players in the fast growing banking sub sector.

And to cash in on the emerging goodwill, the bank’s CEO Nathif Adam said he intends to introduce more Sharia compliant products into the Kenyan market and expand branch network to 10 from current the four by the end of January, next year.

“The future of Islamic banking in the country looks even brighter now and to demonstrate this future growth potential, we can use the fact that as one of the youngest banks in the country, we have been able to grow our deposit by 100 per cent in the last four months alone,” he said.

The bank, registered only in June this year says its deposit crossed the one billion markets by the end of September, the same period that also saw its capital base leap from Sh510 million to Sh1 billion.

Buoyed by the success story, Mr Adam is betting on diversifying to more Islamic financial services as well as on aggressively expanding the bank’s branch network to broaden its reach in the next two months to 10 from the current four branches that it currently operates. The branch expansion binge is expected to continue next year and total 15 by December.

The bank, which is planning to open an Islamic insurance agency, says it expects the Capital Markets Authority to approve its request to diversify to Islamic investment banking.

Mr Adam attributed the bank’s rapid growth to extensive product base that includes Islamic asset financing to the most recent product where it buys off interest based loans from Muslims who might have contracted them under the conventional banks in exchange for its Sharia compliant products.

“We are also signing a contract with the Constituency Development Fund to enable interested youth groups to receive the fund in a Sharia compliant (interest free) manner,” he said.

Although it took several years of protracted negotiations between CBK and the Islamic community, the CBK which was initially averse to sectarian banks only changed its attitude after the 2005 joint tour with the Muslim community to the UK to study the Islamic banking phenomenon, which had already taken root there.

(Business Daily Africa)

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