Islamic banking: A partnership made in heaven?

 

Judging by some recent developments, the Islamic finance industry continues to gain traction in sub-Saharan Africa (SSA) with the major boost coming from Standard Chartered Bank (SCB), whose dedicated Islamic banking division, Saadiq, made its entry into Kenya in April, its first such foray into Africa.

It is perhaps revealing that SCB Saadiq chose to launch its debut operations in Kenya rather than South Africa or Nigeria, the two largest economies in Africa. Individually, South Africa is the most developed Islamic finance market in SSA, followed by East Africa (mainly Kenya, Uganda and Tanzania) and West Africa (Nigeria and Senegal).

However, if northern Africa is included, then Sudan is by far the oldest and most developed Islamic finance market, with the so-called'Arab Spring' countries undergoing political and economic transition.

Standard Chartered is capitalising on its existing network of 28 conventional banking branches in Kenya, where enquiries about and demand for Shariah-compliant financial products have been increasing. The bank has suggested that it would use the unit in Nairobi to spearhead its Islamic finance activities into other African countries as well. Initially, SCB Saadiq's branches in Nairobi and Mombasa, where the largest percentage of Kenya's 15% Muslim population (out of total population of 40m) are located, will be dedicated Islamic banking ones, expanding later to other locations.

Another driver of SCB Saadiq's decision to use Kenya as a hub is the adoption of the Capital Markets Master Plan (CMMP), which at the time of writing, was under market consultation for comments to the Capital Markets Authority (CMA) and which has detailed proposals for developing an Islamic finance and capital market in Kenya both in the short and medium term. The CMA and the Central Bank of Kenya (CBK) are both proactive supporters of the development of Kenya's Islamic finance proposition, which they see as vital in promoting Nairobi as a major international financial centre in Africa.

In the CMMP consultation draft, the CMA stresses that "Islamic capital markets need to be recognised in the legislation governing capital markets (among other financial services sub-sectors)."

Similarly, the Kenyan authorities believe that by opening up the financial system to Islamic finance, consumers, irrespective of faith, would get wider choices. It could also make Kenya more attractive for inward foreign direct investment (FDI) especially from the Middle East and Southeast Asia, the two largest regional markets for Islamic finance in the world.

- See more at: ABM

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