The auditors insisted on treating the lender’s Sharia-compliant products as insider loans, and assessed that the SPVs set up to disburse these loans were not assets of the bank, but interest-free loans to directors. Chase Bank was forced to restate its financials, which indicated it had under-reported insider loans by Sh8 billion, casting doubts over its financial health as it reported a surprise Sh743 million loss. Toxic products “Chase Bank was not brought down by Islamic banking products because the facility that the directors had supposedly taken would have qualified as a Qard-Hassan (good loan), or an interest-free loan,” Juma Makomba, the Sharia compliance manager at Takaful Insurance of Africa, said. “A Qard-Hassan is given to somebody who is in distress, but the product they were calling a Qard-Hassan, I think, was Musharakah [joint venture].”
The Government will then introduce a National Sharia Supervisory Board (NSSB) that will advise regulators on the authenticity of Islamic products from next year. NSSB will also develop a framework to apply audit, tax and regulatory requirements for the products. It will also be mandated to resolve differences in opinions on Islamic finance products.
A number of conventional insurers have established or are in the process of establishing window operations. December 2013 saw the launch of the first Takaful Sacco, Crescent Takaful Sacco Society. The Government is also looking to issue a sukuk, an Islamic bond, which presents a viable source of alternative funding for public infrastructure. Treasury Principal Secretary Kamau Thugge said the Government would consider issuing a sovereign sukuk after the implementation of sector reforms, and added that its size would depend on the country’s needs.