Kenya should fully leverage Islamic finance potential to boost economic growth - Hogan Lovells

Friday, May 5 2017 — Kenya has the opportunity to become the hub for Islamic Finance in East and Central Africa, according to global law firm Hogan Lovells. The Government’s announced intentions to develop Sharia compliant funds-structuring and banking are likely to be an attraction for investors from Asia and the Middle East in Kenya.

Islamic banking and finance is based on profit and loss sharing, along with a religious prohibition in dealing in interest and transactions which are deemed too speculative in nature. These aspects of Islamic finance also invariably apply to the infrastructure of Islamic financial institutions – for example, Sharia compliant operational procedures, relating to the purchase and sale of assets as well as, usually, audits by a bank's Sharia advisors.

During the Budget reading 2017-2018 financial year, Treasury Cabinet Secretary Henry Rotich highlighted the Government’s focus on Islamic Finance as a way to attract foreign direct investment. The Government intends to roll out guidelines on Sukuk bonds and Takaful Retirement Benefits Schemes to allow for the introduction and development of Sharia compliant products.

“We welcome the Government’s plans to renew its focus on Islamic banking which we view as having several benefits for Kenya’s economic growth. Although the amendment of section 12 of the Banking Act formally introduced Islamic banking in Kenya, further regulatory changes are needed to ensure the Sharia compliance of the Islamic banks' activities and increase the confidence in the industry,” said Imran Mufti, Partner at Hogan Lovells.

Islamic finance could play an important role in meeting Kenya's national priorities such as infrastructure, development and financial inclusion, among others.

More than 30 percent of the Kenya’s population practices Islam. Inadequate access to funds is a major developmental constraint for Kenya and many SMEs and entrepreneurs remain outside the mainstream banking system. Islamic finance therefore has the potential to be a catalyst for financial inclusion across Kenya and become an important source of capital for small companies and individuals.

Imran Mufti added:

"Kenya’s challenging financing requirements provide an opportunity for Islamic finance to grow and bridge the funding gaps in the vital infrastructure projects for the country. Islamic finance could well act as the catalyst in mobilising funding into Kenya, thereby resulting in economic growth and sustainable development."

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