Islamic bank set to launch in Kenya

Source: www.arabianbusiness.com, Safura Rahimi and Reuters on Thursday, 22 February 2007

A consortium of investors including a Bank Muscat unit and Dubai government investment agency Istithmar will open an Islamic bank in Kenya this April, the bank's chairman said. Bank Muscat International (BMI), which plans to sell a 40% stake in an initial public offering this year, will own 20% of Gulf African Bank, Abdul-Malik al-Khalili told Reuters in Dubai on Tuesday. Other shareholders in the bank, which Khalili termed as Kenya's first sharia-compliant lender, include Istithmar, which will hold 30%, and International Finance Corp., which has taken a 10% stake, said Khalili, chairman of both Bank Muscat and BMI.

Sharia, or Islamic law, bans receiving interest, which the religion equates with usury. A basic principle of Islamic banking is the sharing of profit and loss, as well as safekeeping and joint venture.Saudi investors and the Free Trade Area bank are also shareholders, Khalili said. Gulf African will start with $25 million in capital and could expand to other African countries, where Islamic finance is still underdeveloped, he said.Around 26% of Kenya's population is Muslim but there is a dearth of banking services that comply with sharia, he said. "Africa is an attractive emerging market for growth of Islamic finance. There is a lot of liquidity in the Gulf and we are making a bridge between the two," Khalili said. Kuwait's Al Madina for Finance and Investment Co. said in September it would set up an Islamic bank in Kenya with other investors, which it did not name.It called Kenya the gateway to East Africa and Central Africa.Bank Muscat, Oman's largest lender by market value, owns 49% of BMI, with Kuwait's Global Investment House, Istithmar, the government of Oman and Bahrain's Premium Group holding the rest. Istithmar, fully owned by the Dubai government, paid $1 billion for a 2.7% stake in London-based Standard Chartered in October.

KENYA: Background of Islamic banking industry

Source: Islam in Africa Newsletter, Volume 1 (2006), Number 2 (June 2006)

The Kenyan government will allow financial institutions to offer Islamic banking services that charge no interest. It is the first time the government has made credit access possible for those who have been left out of the financial services because of their faith. The first Islamic bank in Kenya will open its doors to the public in September 2006. The bank will give a wide range of Shari'ah-compliant banking services once it is operational. The bank will conduct its activities in a purely Islamic mode, which includes a stipulation that money must be invested ethically and that the giving or receiving of interest is forbidden. A Shari’ah supervisory body of scholars from the Middle East will partner with local counterparts to supervise the bank's activity.

Among the wide range of products expected to be tailor-made for Muslims will be interest-free banking services, mortgages, car financing as well as health financing schemes. However, the bank will not invest in businesses that are deemed "unethical', such as tobacco, gambling, alcohol and pornography.

In the first year of operations the bank will open branches in Nairobi and Mombassa, growing these to 14 in the next four years, targeting Muslim-dominated areas such as Malindi, Lamu, Wajir, Garissa and Mandera. The bank will also provide services to non-Muslims wishing to try the Islamic banking system.

A precursor to the Islamic bank was launched on December 21, 2005, when Barclays became the first bank to launch Islamic banking products to meet the discerning needs of its thousands of customers in Kenya. The bank launched La Riba Current Account, an interest-free bank account, designed to address the sensitivities of customers who adhere to the Muslim faith, which forbids the earning or payment of interest.

With the establishment of the Islamic financial institution, Kenya will join other African countries such as South Africa, Sudan, Egypt, Senegal and Nigeria, where the concept is already being implemented.