Despite 2022 having been a year of highly contested presidential elections, Kenya retained its position as a leading economic and financial hub in East Africa. In the wake of a disputed presidential win, the Supreme Court of Kenya moved swiftly to determine the presidential petition, thus cushioning the country against negative economic effects. As a result, the faith of local and foreign investors was quickly restored in the maturing democracy as a sound and safe destination for global finance. Accordingly, a year that started on a ‘watch and wait note’ has quickly turned around to an eventful close.
Review of 2022
Having pointed out that the months of January to August 2022 were a speculative period for many businesses, it is surprising that Islamic finance in Kenya made significant strides, all factors notwithstanding.
One of the most remarkable partnerships in Islamic finance this year was between Kenya’s giant telecommunications company Safaricom and the Islamic Gulf African Bank (GAB). To put this partnership into perspective, Kenya is a renowned global leader in mobile money innovations with the leading financial digital platform being Safaricom’s Mpesa.
Through Mpesa, users are not only able to transfer money to each other in real time through a mobile phone, but they are also able to save money through bank linked e-accounts. Users can also remotely and instantly access credit and overdrafts through mobile phones without any collateral. The services are accessible with or without internet, meaning that Mpesa’s financial outreach is extremely wide, thus registering a revenue of approximately US$2.8 billion in 2021.
Through this 2022 partnership, GAB sought to tap into this digital financial market by initiating the first ever Shariah compliant digital savings platform dubbed Pesa Halal. This platform is accessible to both Muslims and non-Muslims whereby users can access micro savings and credit solutions through their phones.
Pesa Halal users can access instant interest free credit with a repayment period of up to 30 days, with a 5% commodity Murabahah margin. Thus, Muslims in Kenya finally have an Islamic-conscious digital platform through which they can comfortably take advantage of digital finance. Companies offering these digital platforms are also able to tap into Muslims’ booming microbusinesses that have remained untapped for ages.
In Kenya’s North Eastern Province where the population is predominantly Muslim, 2022 saw more of the traditionally unbanked population access Islamic compliant financial services such as interest-free loans, savings and insurance services through Crescent Takaful Sacco, which is a pioneer Shariah compliant savings and credit cooperative (sacco).
In a country where saccos in 2021 accounted for approximately US$5.64 billion in deposits and US$5.55 billion in borrowings, it is clear that they are preferred to banks by individuals and small to medium businesses due to flexibility in accessing credit and their lower interest rates. Thus, establishing a Shariah compliant sacco is a significant step in guaranteeing financial services access to the Islamic population amounting to approximately five million people.
Given the novel nature of Islamic finance in Kenya, capacity-building is key for the players in understanding the intricacies of the industry. Against this background, the Kenya Institute of Monetary Studies also introduced a course in Islamic financial services to equip individuals to take advantage of this fast-growing global industry.
Preview of 2023
Even though Islamic finance is becoming well-rooted in the country’s private sector, the Kenyan government is yet to take full advantage of Islamic finance as a source of foreign direct investment to fund government infrastructure and projects. The IsDB, for example, has been a major financial partner in some African countries. The bank has continuously shown interest in penetrating the African market as a senior lender, through public–private partnerships and through provision of grants.
This is a good example of how Kenya as a country can take advantage of Shariah compliant international finance for its economic growth as compared with commercial loans coupled with exorbitant interest rates. 2023 being a year characterized by a new government with potentially new infrastructural initiatives presents a great opportunity for any Islamic lender seeking entry into the market to make their impact. The year also presents an opportunity for commercial banks to continue refining their Shariah compliant products to tap into a wider market.
Conclusion
Despite 2022 being a slow year for business due to elections, there has been significant movement in Islamic finance, which presents an opportunity for more investors to play in that space. Despite this growth, Kenya as a country is yet to fully benefit from Shariah-backed international finance, and the year 2023 presents a good opportunity to tap into Islamic development banks for infrastructural development. In conclusion, the substantial movement in Shariah-based finance points out to a purposed and continuous move toward inclusive finance in the country.
Mbula Mulu is a senior partner at Mulu & Abuja Advocates. She can be contacted at [email protected].