Bishop David Oginde’s opinion piece “Why expansion of Sharia laws remains perturbing” published in the Sunday Standard last weekend gave the impression that some proposed reforms in the Finance Bill 2017 portend danger simply because they touch on Islamic financial products. Bishop Oginde was clever in his approach but his message was loud and clear; Reforms to help promote Islamic financial products in this country should be viewed as a grand scheme of Islamisation, subtly disguised in a policy cassock. Here is why his arguments do not hold water: First, the good Bishop’s opposition to the institutionalisation of these reforms seems to be on the basis that they are discriminatory and would marginalise non-Muslims. Bishop Oginde notes, “The concern therefore is that such a move may result in a situation where the Muslim community enjoys preferential exempt status by government in the raising of taxes to fund national obligations, while non-Muslims continue to shoulder the burden.” This is laughable! How can such a statement be true when these products are available to every individual, irrespective of their religious leanings and will be traded by the Barclays, CBAs and KCBs of this world? This is not religious zamzam water being availed in mosques only. These are financial products available in the market for all Kenyans. How is it then that the non-Muslims will be subsidising the Muslims? Gai! Second, who says non-interest based financial transactions are based purely on Islam? It is not Islam only that prohibits interest and usury. Christianity and Judaism also condemn it. The Bible condemns interest and usury and one would expect a bishop like Oginde to know this. In fact after the recent global financial crisis, Osservatore Romano, the Vatican Newspaper published an article extolling the merits and successes of Islamic banking and voiced its approval of Islamic finance. It asked banks to look at the rules of Islamic finance to restore confidence amongst their clients at a time of global economic crisis. “The ethical principles on which Islamic finance is based may bring banks closer to their clients and to the true spirit which should mark every financial service” it wrote. May be Bishop Oginde is more Christian than the Pope himself. Furthermore, would not a Christian bishop having issues with an ethical based financial arrangement not give the impression, albeit a subtle one, that the conventional interest-based financial institutions that many Kenyans detest today, are indeed Christian? Why would a bishop, of all people, have a problem with any system meant to ensure people are not exploited and taken advantage of, just because it is the brainchild of another faith? If Kenyan Christians want to establish banks or products that go with their ‘no usury’ Christian principle, why wouldn’t that be welcomed by even say the Muslims? Bwana Bishop, we Muslims have absolutely no problem with Saturdays and Sundays being rest days, not to mention the many other Judeo-Christian based laws of our constitution. Finally, Bishop Oginde thinks Kenya’s plan to join the Organisation of Islamic Countries (OIC) is a well calculated move to Islamised the country. What he ignores is that many other countries, like Ghana and even our neighbour Uganda, with negligible Muslim population, are already in it. Kenya, like these other countries, wants to join IOC for financial not religious reasons. It wants to access loans from the Islamic Development Bank (IDB). Such loans will benefit all its citizens. People like Oginde would probably opine that Kenya does not need the IDB since it is ‘Islamic’. They would rather we take loans from the IMF and the World Bank because these institutions in their misconstrued judgments are ‘Christian’? Countries such as the UK, China, Japan, US and South Africa, which have minority Muslim populations, have amended their legislation to accommodate these products. Even the World Bank recognises Islamic finance as an effective tool for financing development worldwide, including in non-Muslim countries. It is an industry with $1.5 trillion in assets and Kenya cannot ignore it. Kenya needs an integrated financial system with deep and efficient financial markets capable of improving financial inclusion and wooing international investors from all corners of the world. Before the introduction of Islamic banks and Islamic windows in the conventional banks, we had a deliberately unbanked citizens who did so in order to maintain their religious sanctity. The proposed reforms in the Finance Bill 2017 are meant to attract this group. They are also geared towards attracting investments from the Islamic axis of the liquidity rich Middle East, South Asia and North Africa, open up investment opportunities in our financial institutions and ultimately create jobs for Kenyans of all faith. These are the reasons behind the amendments being made to the several finance related laws in the Finance Bill 2017. Bishop Oginde should see these issues in terms of their substance and not in their identity.
Originally published on www.standardmedia.co.ke
Sub Saharan Africa
Islamic Banking is For Everyone, say Kenyan Authorities
Islamic banking is quickly gaining popularity in the Kenyan market, and banks have been quick to tailor the product accordingly.
Global regulations on Islamic banking dictate that for any institution to call itself an Islamic financing institution, there must be a Sharia supervisory and advisory board whose role is to ensure that the products or services are in conformity with Sharia and certify those that conform.
The model is about transparency, accountability and trust. To ensure this, Islamic banking ensures that all contracts entered into with customers are clear from the onset, and that there are no hidden clauses that could later impact the customer or the bank negatively. It also offers an array of products available in the conventional banks.
This model stands out from conventional banking in that it is governed by the Islamic canonical laws (Sharia Law), which follow the teachings of the Koran. This means that all the services and every transaction under Islamic banking follow guidelines set by Islamic scholars, and is subject to audit to ensure that all rules are adhered to.
Every bank that offers these products is assigned a different set of scholars to help with the interpretation of the law.
According to KCB head of Sahl banking Molu Halkano, the concept of Islamic banking is new to the market, and there is a need for customers and various stakeholders to have information about how it works.
“As KCB we have made decisive steps to create awareness of Sahl banking by engaging with customers and clients through workshops, customer forums, media engagements, seminars and thought leadership articles for the purpose of exchanging ideas on Sahl banking and Islamic banking with the Sharia board, staff members and even customers.”
With any new product comes a set of challenges, and Sahl banking is not any different. One of the major challenges affecting Sahl banking, and Islamic banking products as a whole, is the problem of excess liquidity in that they are not able to invest in any profit generating ventures such as government securities as done by conventional banks.
The lack of unique frameworks by the government to regulate Islamic banking is the other challenge, leaving the Islamic banks to be regulated as other conventional banks.
Another challenge is perception, which has affected the uptake of Sahl banking. KCB is committed to pushing for change
“We are involved in a project that has been set up on the national level in collaboration with external consultants, for the purpose of developing the right and appropriate frameworks that will help overcome some of the regulatory and institutional challenges facing Islamic finance,” says Halkano.
The bank is gaining trust among non-Muslim customers, with the number currently standing at 25 per cent, and more are expected to sign up.
KCB is working tirelessly to ensure expansion of Sahl banking locally and regionally as they seek to deepen their offering so as to reach the untapped market of both Muslim and non-Muslim customers. The Sahl banking centre is at the Kimathi Branch in the city centre. The service, however, is available in all the other branches.
As Sahl banking develops, KCB is looking to incorporate Fintech services such as mobile banking to make the product accessible remotely. Other stakeholders in Islamic finance such as the government are also committed to pushing this product by bringing the players together to exchange ideas and share information.
Islamic banking is definitely a key player in the future of the banking industry, and its penetration is set to revolutionise the business, which operates mainly on trust. If people trust Sahl banking, they will be more open to banking with KCB and this goes further, beyond the borders.
Originally published on www.the-star.co.ke
Islamic Finance is Based on ‘Shared Prosperity’
The way Muslims do business is based on free-market economics, but it provides a far more equitable and sustainable economic model than the dog-eat-dog world of Western capitalism. This was a strong underlying message to come out of a recent conference on Islamic banking in Sandton.
Islamic finance, which is governed by shariah (Islamic law), is firmly established in South Africa. The sector has been boosted by the government’s efforts to accommodate its products and services in financial regulation, with a view to South Africa becoming the Islamic finance hub for sub-Saharan Africa.
At a well-attended conference hosted by law firm Cliffe Dekker Hofmeyr last week, two eminent figures in the Islamic finance community, Bilal Jakhura, the director of the Centre for Islamic Economics and Finance South Africa, and Mohammed Kaka, the executive director of Albaraka Bank, outlined for a largely non-Muslim audience the principles and practices of Islamic finance, and provided details of the various banking products on offer.
History
Although the faith-based principles underpinning Islamic commerce extend back to the early days of Islam, Jakhura says that formal Islamic banking and the codification of these principles has occurred only in the past 40-odd years. Now, with over 300 institutions spread over 75 countries, the Islamic finance market is worth about US$2.1 trillion (according to Thompson Reuters in 2014), with an annual growth rate of over 17% from 2009 to 2014.
Banking the Islamic way has been an option for South Africans – it is not restricted to Muslims – since 1989, when Albaraka Bank opened in Durban.
In 2004, First National Bank (FNB), the first mainstream South African bank to offer shariah-compliant financing, launched FNB IslamicFinance as part of its WesBank vehicle financing division, and it later became a fully fledged banking operation.
Absa Islamic Banking was established in 2006.
Shariah-compliant collective investments have proliferated in the past decade, and are offered by a number of asset managers (see “Collective Investment Schemes”, above). And the JSE, in conjunction with the FTSE, has two indices that reflect the performance of shariah-compliant listed companies: the FTSE/JSE Shariah All Share Index and the FTSE/JSE Shariah Top 40 Index.
Over the past several years, the government has amended financial legislation to better accommodate shariah-compliant banking and investment products and services, Jakhura says.
Collective investments can now include non-equity shariah-compliant instruments, and tax laws have changed so that those investing in shariah-compliant products can enjoy the same tax concessions as those with conventional products.
Jakhura says that in 2014 National Treasury broke new ground by issuing a $500-million Islamic bond, known as a sukuk.
Financial principles
Islamic economic principles, Jakhura says, are consistent with the concept of “shared prosperity”, whereby society benefits as a whole. He says it is increasingly recognised, not only by Islamic institutions, but also by global institutions such as the World Bank and the World Economic Forum, that the adherence to certain principles inherently leads to sustainable economic development and a more equitable distribution of wealth. In 2009, following the global credit crisis, the Vatican suggested that “the principles of Islamic finance may represent a possible cure for ailing markets”.
Islam recognises the forces of supply and demand, the profit motive and the right to private ownership, which are essential for innovation and prosperity, Jakhura says. But it differs from Western capitalism in that capital cannot dictate its own rewards – there is a sharing of risk between the supplier and the user of capital, instead of a transfer of risk. And no rights are absolute – they are subject to higher moral considerations.
Islamic commercial law, or Mu’aamalaat, which forms part of shariah, espouses the virtues of “the honest businessman” and requires transparency and fairness in business dealings, Jakhura says.
The fundamental principles of Islamic finance are:
• “Riba” is prohibited. Riba literally means excess or increase, but commonly refers to interest on a loan. In fact, Jakhura says, the concept of a loan, as it is understood in Western finance, is foreign to Islamic finance.
• There is a shared responsibility for profit and loss between borrower and lender. A good example of this in conventional finance is buying shares in a company. Shareholders enjoy a share of the company’s profits if it does well, and bear a share of its losses if it does badly.
• Investing in companies that provide goods or services considered contrary to Islamic values is prohibited. These include interest-governed financial institutions; the entertainment industry, including hotels, casinos, and nightclubs; and companies manufacturing, selling or offering alcohol, pork, gambling, pornography, prostitution, weapons or tobacco.
• Transparency is demanded of all parties in a financial transaction. Shariah forbids deception by, for example, exaggerating a product’s worth or concealing a defect.
• Transactions must be backed by tangible assets, and the trading of debt is prohibited. This rules out speculative investing and trading in derivatives.
• All financial institutions offering shariah-compliant banking and investment products must have in place a shariah supervisory board – made up of Islamic clerics and scholars who have the respect of the Muslim community – which monitors compliance.
Financial transactions
The main types of transaction used in Islamic finance are partnership-based profit-sharing agreements, sales-based agreements and lease agreements.
• Profit-sharing agreements traditionally occur between a lender and an entrepreneur.
In a joint partnership, or “musharakah”, the bank will help to finance a company through establishing a joint venture. The bank’s return on the loan for the venture is an agreed percentage of the company’s profits. This is similar to a conventional simple venture capital deal, where the financier that provides start-up capital becomes a joint shareholder.
• Another type of agreement is trust financing, or “mudarabah”, whereby one party provides expertise and managerial skills, and financing is fully provided by the other party. Profit is shared according to an agreed ratio, but the risk of loss lies with the provider of the capital. This can work for financing or for investing.
• A common sales-based transaction is “murabahah”. Instead of lending money for an item, the bank buys the item and sells it to the buyer at a higher price, allowing the buyer to pay it back in instalments. Ownership transfers on the conclusion of the sale.
In some cases, the item is registered in the buyer’s name from the start of the transaction; in others, registration in the buyer’s name is delayed until the last repayment has been made.
• In a lease-based agreement, known as “ijarah”, the bank buys the asset and leases it to the lessee for a fixed term. The rate at which the asset is leased may be fixed or it may fluctuate if linked to a defined benchmark. Depending on the agreement, the bank may retain ownership of the asset at the end of the term or transfer ownership to the lessee.
What the banks offer
Mohammed Kaka, the executive director of Albaraka Bank, says the South African Islamic banking market is very small, but there is the potential for growth in Africa. He says it has been estimated that only 10% to 20% of the Muslim community in South Africa uses Islamic finance.
The Islamic banks offer essentially the same services as conventional banks; the big differences are that they don’t provide unsecured credit in the form of personal loans, overdrafts or credit cards, and there are no predetermined returns on deposits.
• Transaction accounts: on cheque and savings accounts, you transact with an ATM/debit card. Internet and cellphone banking are generally available. Debit cards must have a positive balance.
• Deposit accounts: Islamic banks offer notice accounts, fixed deposits, facilities for investing a specific amount monthly and lump-sum investments that provide an income. They do not fix rates of return on deposits, because this would be tantamount to paying interest, but they pay out a share of the bank’s profits to depositors.
• Investments: Albaraka has unit trust investments in the form of the Old Mutual Albaraka Equity and Balanced funds (see “Collective investment schemes”, below).
• Financing for concrete assets, such as vehicles, is mainly based on the “ijara” (leasing) model, with the option to own the asset on settlement. Home loans are based on the “diminishing musharakah” model, whereby the client gradually owns a bigger and bigger portion of the property. The bank and client initially own the property in, say, an 80%/20% partnership (the 20% is the deposit on the property). The bank’s share is divided into units and the client undertakes to purchase from the bank one unit a year over an agreed period (for example, 10 years). The client becomes the sole owner of the property at the end of the period.
• Shariah-compliant insurance for your vehicle, household and business, based on the “takaful” model whereby contributions are pooled in a co-operative system.
Originally published on www.iol.co.za
How to Attain a Robust Islamic Financial System in Kenya?
NAIROBI, KENYA: Although Islamic Banking is at nascent stage in the country, the faith-based lending model is becoming a fast growing trend in the Kenyan financial sector and showing indicators of exponential growth. The concomitant expansion of Islamic finance activities in the region and the huge Muslim population can be largely attributed to reforms in regulatory and taxation frameworks. These two strictures have remarkably redefined Islamic Financing in the country necessitating innovation and creativity to meet the growing and diverse needs of the customers. Acceptance of Shariah laws by the general public, has catalysed the adoption of this alternative financing option within mainstream banking
KCB Bank Kenya SAHL proposition boasts of growth in terms of breadth of products with varying degrees of sophistication. The lender institution has developed regulations anchored on safeguarding depositors’ interests while ensuring the stability of its financial systems in achieving efficiency and reliability to customers in line with Kenya’s monetary policies. This determination has greatly contributed to the indicative growth in demand of KCB SAHL Banking Shariah Compliant products. The industry has previously weathered a series of economic challenges ranging from taxation reforms, interest rate capping that have consequently resulted in implementation gaps and resources constraints in launching new products. Introduction of new products can no longer be without a definitive plan based on resources available and return on investment.
To accelerate uptake of Shariah Compliant products, robust feedback mechanisms have to be put in place to gauge the impact from all the stakeholders in the markets. There is need therefore, that consolidation of gains made are aligned with customer value created, human capital efficiencies achieved, and resources mobilized while working closely with the regulator to spur positive Islamic finance growth. The strides made so far are indicative of the growing support for Shariah Compliant products occasioned by concrete mechanisms and better value proposition. In our view, there is need to offer a rich range of products dedicated to individuals and economic institutions in Kenya emphasizing keenly on functional benefits derived by customers from using such products.
We need to invest more in IT Infrastructure and deepen the use of mobile platforms in addressing customer needs. The country requires a robust legal framework and this calls for passing into law of a variety of new laws and regulations surrounding Sharia Compliant Products. KCB Bank has developed an array of modalities and financial instruments towards market expansion and integration with existing products. There is need to accelerate Sukuk issuing to offer an opportunity for diversification.
The current Finance Act does not allow the creation of debt through direct lending yet. Islamic finance advocates for the seller or lessor should have real ownership of the asset been sold or leased before a transaction. The debt created from such sale or lease transactions cannot be sold to a third party to avoid the risk associated with it. These requirements makes the lender take responsibility for risk or debt financing, thus helping prevent excessive risk and debt accumulation. Further work is needed to ensure compliance, including a transparent and credible assessment process for evaluating compliance with standards. Kenya’s Islamic finance growth has a huge potential given the region’s demographic structure and potential for financial deepening.
If we are to realise gains from creation of new Shariah compliant financial instruments and incorporation into tax codes, all stakeholders must develop supportive tax and legal environment, which will provide the impetus to the development of Shariah-compliant products. Perhaps Parliament should allow compensation in Sukuk to be treated as interest paid on any bond offering, deductible from taxable income and exempt from withholding tax. We need to tailor Islamic finance models to the needs of Kenyans. There is need to strengthen capacity for domestic supervision, liquidity monitoring, and crisis management. It is also vital to constantly evaluate our financial stability, appropriate legal, regulatory, and supervisory frameworks.
Developing Islamic finance could complement Kenya’s efforts to deepen its conventional financial systems. In addition, Islamic financing can also contribute to the development of small and medium enterprises and microfinance activities that are key toward the realisation of vision 2030. As matters stand in Kenya, we are operating Shariah Banking under waivers from existing Acts of Parliament.
We should consider borrowing a leaf from our neighbours Uganda who are already a step ahead in implementing necessary legal reforms in Islamic finance. The country’s law makers passed the Financial Institutions Amendment Bill 2015 paving way for introduction of Islamic Banking in the country under its own statute.
Originally published on www.standardmedia.co.ke
ICD Extends $5 Million Line of Finance Facility to Arab Gambian Islamic Bank
ICD) – The Islamic Corporation for the Development of the Private Sector (“ICD”), the private sector arm of IDB Group, and Agib Bank Ltd have entered into a Joint Strategic Collaboration to finance private sector entities in The Gambia.
On behalf of the CEO of ICD, Mr Khaled Al Aboodi, Mr. Mohammed Alammari, Director of Internal Audit at ICD signed the financing agreements for the amount of USD5 million. with Mr. Muhammed Jah, Chairman of Agib Bank.
The collaboration will focus on developing private sector, supporting economy, strengthening the balance sheet of the Bank, improving the living standard of the population by creating jobs, generating tax revenues for the government and promoting Islamic Banking in the country.
Mr. Mohammed Alammari stated “We are pleased to extend the next line of financing facility to Agib Bank Ltd which will enhance the impact of socio-economic development and facilitate access to finance for Gambian businesses sector”
Mr. Muhammed Jah said, “Agib Bank is committed to further strengthen its position in the banking sector as a reliable, modern credit institution, providing a wide range of banking services and support the private sector in Gambia. We are delighted about this partnership with ICD and Agib Bank Ltd. Through this partnership we aim to provide further support to enterprises in the country to achieve their highest potentials.”
The Managing Director and CEO of Agib Bank Ltd, Mr Nuha Marenah, assured ICD of Agib Bank’s resolve to contribute to the socio-economic development of The Gambia. He also said Agib bank has the capacity, both in terms of technology and human resources to manage the line of financing to the total satisfaction of all stakeholders.
About the Islamic Corporation for the Development of the Private Sector
ICD is a multilateral organization and a member of the Islamic Development Bank (IDB) Group. The mandate of ICD is to support economic development and promote the development of the private sector in its member countries through providing financing facilities and/or investments which are in accordance with the principles of Shari’ah. ICD also provides advice to governments and private organizations to encourage the establishment, expansion and modernization of private enterprises. ICD is rated AA/F1+ by Fitch and Aa3/P1 by Moody’s.
About AGIB
AGIB LTD was incorporated as a private limited liability company in November 1994 and was granted a banking license by The Central Bank of The Gambia in September 1996. The bank became fully operational in January 1997.
In September 2008 AGIB consummated a strategic alliance with First Inland Bank (FINBANK) of Nigeria. In May 2014 FINBANK’s shares were bought over by a Gambian Businessman making him the majority shareholder. The Islamic Development Bank in Jeddah also holds significant shares. The bank currently has over 100 employees and has six (6) branches strategically located in Banjul, New Jeshwang, Tranquil, Bakoteh, Brikama and Basse.
The Bank operates on the Islamic Economic Principle of Risk/Reward also known as Profit and Loss sharing. Our unique brand has enjoyed wide acceptance in every stratum of The Gambian society providing attractive platform to avail financial solutions to their banking need.
Originally published on www.ecofinagency.com