2020 has no doubt been unique and the effects of COVID-19 have had a global impact on many fronts. In the Islamic finance sector in Kenya, there has been little development in new products or new entrants probably because a lot of effort has been channeled toward mitigating the impact of the pandemic. However, this did not stop policymakers and stakeholders from enquiring into ways of making Kenya a market leader in Islamic finance.
Review of 2020
The industry regulators have been focused on ensuring the stability and resilience of the entire finance industry. From the perspective of Islamic finance only, in June 2020 the Capital Markets Authority held a stakeholder webinar on activating the use of Islamic finance products and services. The National Treasury and the Capital Markets Authority noted that there has been a slow uptake of Islamic finance products and they intend to forge ways forward to establish a conducive environment for the development and growth of Islamic finance.
Stakeholders have identified a number of action points that would enhance the development and uptake of Islamic finance products in Kenya, including expediting the preparation of the National Policy on Islamic Finance, the government to show goodwill and act as pacesetters by issuing sovereign Sukuk, educating investors on Islamic finance products and setting a periodic review of the uptake and progress of Islamic finance products in Kenya.
Takaful Insurance Africa is already leading the way in creating awareness by launching the TIA E-Magazine. The magazine will be published on a quarterly basis and aims to provide information about the Takaful industry in Kenya and establish itself as a point of reference for research, articles and Shariah aspects of Takaful. At the launch of the magazine, Takaful Insurance Africa’s CEO announced that the magazine’s objective is to promote knowledge about the Takaful business locally in Kenya, regionally and internationally.
The Kenya School of Monetary Studies offers Shariah compliant banking courses to create awareness of Islamic finance and enhance the skills of finance staff working in the Shariah compliant banking sector. Certain other institutions also offer courses on Islamic finance.
As a response to COVID-19, Momentum Credit, a microfinance company which opened its eighth branch in Nairobi recently, has introduced its product called Sahih that allows customers to access finance by depositing logbooks with the financier. The product would grant the customer financing while at the same time not inhibiting the use by the customer of the asset or vehicle used to secure the finance. In October 2020, the Kenyan parliament amended the rules governing car loans and mortgages to be Shariah compliant to enable members of parliament and the Senate who profess the Islamic faith to access such financing. There are also calls to make the National Youth Enterprise Fund and Women Enterprise Fund to be made Shariah compliant to allow Muslim youth and women to access the funds.
Although Islamic finance is not restricted to Muslims, in Kenya the uptake is mostly from Muslims. The reason for this is that until Islamic finance products in Kenya become more attractive from a pricing or cost perspective, there appears to be no incentive for non-Muslims to choose Islamic finance over conventional finance, which they have been using for many years.
If Islamic finance products are able to demonstrate competitive pricing or better terms, then this would definitely be a factor which would assist in overcoming the lack of awareness as everyone would become aware and be attracted to the cheaper cost of financing particularly in current times.
Preview of 2021
It is hoped that there will be changes on the policy front and an array of new products suited to the market in 2021. The sovereign Sukuk may debut in 2021 with the Government in dire need of funding. Sukuk has been viewed as an alternative source of financing. However, this will depend on the macroeconomic environment, political climate and impact of COVID-19 which may either stimulate Islamic finance or derail its development.
The draft Takaful regulations which are pending approval may come into force in 2021 as well. It is expected that other subsectors of Islamic finance will continue awareness efforts with respect to Islamic finance products.
The impediments to the growth of Islamic finance are limited awareness, stakeholder inertia, perception problems and stiff competition from conventional finance.
The major conventional financial institutions do offer Islamic finance products so that Muslims are able to use Islamic finance over conventional finance. The general public will be more open to choosing Islamic finance if the products available have better pricing or more attractive terms compared to conventional financing.