Kenya's KCB to offer Islamic banking in all its branches

Kenya's KCB Bank, the country's largest lender by assets, plans to offer Islamic banking products through its entire branch network, accelerating the expansion of sharia-compliant banking in east Africa's biggest economy.

The move comes after Kenya's Capital Market Authority proposed a separate regulatory framework for Islamic finance, part of a broader strategy designed to boost the country's capital markets.

KCB has received all necessary approvals to launch Islamic banking across its 182 branches in the country, chief executive Joshua Oigara said in a statement. "In the long term, the product will...promote development in the marginalized areas of our country," Oigara said.

The lender will initially roll out Islamic banking services through seven branch centers, beginning from next month.

KCB joins Standard Chartered in offering Islamic banking services in Kenya, after the British lender launched its "Saadiq" brand in March.

Islamic finance, which follows religious principles such as bans on interest payments, accounts for roughly 2 percent of total banking business in Kenya, where Muslims make up about 15 percent of the population of 40 million.

There are currently two full-fledged Islamic banks in Kenya - Gulf African Bank and First Community Bank (FCB) - as well as Islamic banking services at several conventional lenders.

KCB, which operates across east Africa from Burundi to South Sudan, already offers Islamic banking services in Tanzania.

Islamic finance is also being developed by several other sub-Saharan countries in Africa such as Nigeria and Djibouti.

In June, Kenya's finance minister said the government would consider issuing Islamic bonds, or sukuk, after a successful debut $2 billion Eurobond.

EiD Greetings from AlHuda Centre of Islamic Banking & Economics

Islamic Financing To Overtake Conventional Banking In Kuwait

Commercial Bank To Provide Shariah-Compliant Products And Services

KUWAIT CITY, July 24: An increasing number of Kuwaiti lenders are moving away from traditional banking in a bid to tap into a booming market for Shariah-compliant financial products in the region — a move that could soon see Islamic financing overtake conventional banking in the Gulf state.

Commercial Bank of Kuwait (CBK) is the latest to unveil plans to turn into a fully-fledged Islamic institution. CBK announced in July that it had received regulatory approval to issue up to KD120m ($425.16m) in bonds in preparation for the transition, which received the approval of 85% of its shareholders in April. 

The move by CBK, to be completed by the end of 2014, will help Kuwait cement its position as a provider of Sharia-compliant products and services. There are already five other Kuwaiti Islamic banks; Kuwait Finance House (KFH), Boubyan Bank, Al Ahli United Bank, Kuwait International Bank, and Warba Bank, which was established in 2010. This compares with four conventional banks.

Kuwait’s Islamic banking assets grew by 8.7% during the first nine months of 2013, reaching KD22.5bn ($79.7bn), while Islamic financing grew by 11.2% to hit KD13.5bn ($47.8bn) during the same period, reported in The Banker in April. This exceeded the growth rates in the overall banking sector, which saw a 7.1% growth in assets and a 7.5% growth in loans between January and September. 

This move toward Islamic banking follows a broader regional and indeed global trend. Islamic finance industry’s assets worldwide are estimated to have grown 18.6% annually to reach $1.8trn at the end of 2013, according to KFH Research, which projects that total Islamic financial assets will reach $2.1trn globally by 2015. 

The Sharia compliant sector has expanded rapidly within Southeast Asia and the Gulf Cooperation Council (GCC), whose assets accounts for more than a third of the worldwide total according to KFH. Other banks in this region are also looking to make the switch to Islamic banking. Malaysia’s Agro Bank plans to convert to Islamic banking by 2015 while the country’s SME Bank is planning a full conversion by 2018 according to Reuters. In Pakistan, Faysal Bank and Summit Bank are mulling similar plans. 

Largest

In Kuwait, the sector’s history goes back to 1977 with the establishment of KFH Group, Kuwait’s largest Islamic bank. For the last three years to end-2013, KFH total assets grew at a compounded annual growth (CAGR) rate of 8.8% to reach KD16.1bn ($57.2bn).

CBK, the state’s fifth-largest lender by assets, is following in the footsteps of both Boubyan Bank and Ahli United Bank (AUB) Kuwait in converting from a conventional lender, drawn by the sector’s rapidly rising popularity and promising outlook for growth, which continues to outpace that of conventional lenders. According to Reuters, CBK’s conversion will increase Islamic banks’ market share in Kuwait above an estimated 40%. 

AUB Kuwait, (formerly known as the Bank of Kuwait and the Middle East) posted a record $579.4m in net profit in 2013, a 72.6% increase over 2012’s $335.7m, which Deputy CEO Ahmed Zulficar attributed to the switch to Islamic Banking: “Since the bank’s conversion to Islamic banking, our performance has improved”. 

Islamic finance expert Blake Goud, who writes for the Thomson Reuters Islamic Finance Gateway, noted that AUB had no debt when it switched to Islamic banking in 2010, which was beneficial due to the fact that less instruments had to be converted from conventional to sharia-compliant. 

As a result, it had converted the majority of its loans and advances to sharia-compliant financing by the end of its first year as an Islamic Bank. 

“Contrast that with a similar balance sheet from CBK which has significant assets and liabilities under a year, but will now have a sizeable additional interest-based liability longer than one year (17% of existing liabilities) that will remain on its balance sheet post-conversion,” said Goud.

Q&A: H Abdur Raqeeb on The Need for Islamic Banking in India

India's central bank is reviewing regulations on Islamic banking in Asia's third-largest economy.

The Reserve Bank of India has set up an internal committee to examine the matter, unnamed sources told Firstbiz.com.

The RBI has reportedly set up a three-member panel comprising senior RBI officials Rajesh Verma, a deputy general manager with the Department of Banking Operations, Archana Mangalagiri, general manager, Non-banking Supervision and Bindu Vasu, joint legal adviser.

Islamic banking is practiced in several countries, including in the UK, which in June issued an Islamic bond that attracted orders in excess of £2bn ($3.4bn, €2.5bn) from global investors.

What is Islamic Banking?

Islamic banking follows the Shariah law. The model differs from conventional banking in that it does not accept deposits, only investments, which essentially make banking a venture capital activity. The model also encourages interest free loans in a bid to boost financial inclusion.

Islamic banking is also based on profit and loss-sharing; the model forbids the payment and receipt of interest and prohibits investment in businesses that are considered sinful – such as adult entertainment or the production of alcohol.

Speaking to IBTimes UK, H Abdur Raqeeb, General Secretary of the New Delhi-based Indian Centre for Islamic Finance  (ICIF) told us how India stands to benefit from the roll out of Islamic banking.

Q: Do you think that India is a key place for growing the Islamic banking market and why?

Ans: The misconception among many Indians is that Islamic banking caters to only the Muslim population. The model promotes financial inclusion. India's small farmers and petty traders for instance are still not part of the banking system despite over 40 years of nationalisation of the country's major banks. They cannot go to the capital markets to raise money. Islamic banking can cater to [the millions] outside the commercial banking system.

In addition, Muslims' savings are not being ploughed back into the Indian economy as a large section of the Muslim population here does not bank with commercial lenders.

Q: What needs to be done in terms of rolling out Islamic finance in India?

Ans: Political will is necessary. The government has to take a decision on Islamic banking and the RBI has to regulate it. The central bank has to look into it.

We have been pleading with the government and have met Finance Ministry officials in the previous [Congress Party-led] regime.

Moreover, we don't have to use the term 'Islamic banking' in India. We can refer to it as alternate banking, which is what the UK calls it. Or, we could call it participatory banking, which is what they call it in Turkey.

Q: But, if India adopts Islamic finance on a broader scale, will this mean that a lot of the legal framework will have to change?

Ans: Not much actually. We in India can borrow and benefit from examples of Islamic banking in the UK or in Singapore.

India Reforms

The question about whether India should allow Islamic banking has been debated for long and RBI Governor Raghuram Rajan is no stranger to the debate.

In 2008, India's Planning Commission roped in Rajan, then a Professor at the University of Chicago, to head its High Level Committee on Financial Sector Reforms (CFSR).

The CFSR, tasked to identify 'real sector reforms', recommended that New Delhi 'permit the delivery of interest free finance on a larger scale, including through the banking system.'

Islamic Banking VS Conventional Banking

Islamic banking has developed  recently.  Put forward  to be having high ethical criterions, the banking system upraises questions from many.  First of all, we should answer some questions like that in this field.   Are these standards just a sham —a smart  way to hide  that Islamic banks are basically like any other?  Are they a real attempt to reunite religious principles with finance in a capitalist world?

To answer if Islamic banking is totally different from the conventional banking system, we  should know the history of  this  interest-free  banking system.

Origin of Islamic banking

The most important property  of Islamic banking is its banning  of  interest. Doing business  without the use of interest-bearing loans, in the form of Mudaraba rules, advances the coming  of Islam.

Before Islamic period, Arabs  in Mecca, close to the crossroad  of old commerce  routes, coordinated  caravans to carry  goods between Syria and Yemen.  The Meccan merchants  sometimes  used agents to deliver the goods, buy, sell and report back with the numbers for profit or loss.  Later on, it  was  shared according to the traditional  principles  of Mudaraba.

When a merchant  united with others in a shared trading initiative, the profits or losses were shared, under an another principle called Musharaka, suitable  for an agreement between participating sharers in a trade.  Therefore,  the trading caravans were capitalized with  the principle of  sharing profits or losses, not by interest-bearing loans.

Smaller communities

Before modern banking system becomes popular, Mecca was a quite small town, and the forming  a trade caravan was a principal  occasion.  The travelers and their patrons were acquainted  with one another’s general fame  and status, and possibly knew each other as a  person.  That continued true of societies in the early Muslim period.

But, society is more disunited in today’s world.  Rich people  to invest do not need to know anybody  with an  initiative  that requires capitalizing, and people who have trade thoughts may have no contact  with possible investors.

The conventional banking system has grown up to intercede  between the groups of people, enterprisers and investors.  To exist, the banks obviously  have  to make a profit.

Prohibition on interest

The prohibition of  interest (riba) on loans in Islamic banking system is well known.  Riba is considered as haram, or forbidden in Islam.  But to operate  a bank needs  to charge some fees for its services.  For conventional banks, a principal  of profit is from revenue that is obtained from charging interest.

In contrast, Islamic banks make their profits in other ways such as ‘profit-sharing’.  Is it possible for Islamic principles of profit-sharing rather than interest taking to transfer from the  trading caravans to the anonymous banking system that we experience now?

The old systems of Musharaka and Mudaraba survive in the modern Islamic banking system.  They both refer to ways of sharing risk and reward in place of remuneration at a fixed interest rate.

Mudaraba is used for a more passive kind of investment or participating, in which  one side supplies capital or goods, and  the other side  carries out the work necessary  to gain  a profit.

Musharaka presents  a more active investment style by a person  who is either a partner in the business or  a supplier of money.

A very distinct  difference of the Islamic banking system over conventional banks is on the sharing of risk, that is equally spread to either the lender or borrower.

Islamic Banking Sector in South Africa shows healthy growth

ABOUT half of Africa’s population is Muslim and businesses are gearing up to meet the needs of this growing market with Islamic finance and banking products.

Just less than a decade since the market was created, the local Islamic banking sector is estimated to be worth R80.6-billion in terms of assets under management.

On the African continent, the market’s assets are estimated to be more than $1.6-trillion (about R17-trillion) and are expected to surge to more than $5-trillion by 2020. These numbers may seem a stretch, but Africa is home to more than 500 million Muslims — about a quarter of the world’s Muslim population.

The growth of Islamic banking has not gone unnoticed by the National Treasury. Earlier this year during the budget speech, former finance minister Pravin Gordhan revealed that South Africa will launch Islamic bonds — better known as sukuk — before the end of the year. Sukuk are normally based on property or infrastructure and are designed to pay a fixed profit rate rather than a coupon.

Absa, FNB, Al Baraka Bank and HBZ Bank offer Islamic commercial and corporate banking products in South Africa.

Standard Bank has Islamic banking offerings in other countries on the continent, and Nedbank is rumoured to be assessing the possibility of dipping its toes into the market.

Islamic banks do not require their clients to be Muslims. “We are not pushing a religion here. We are pushing a [financial] product that has certain requirements,” said the head of Islamic banking at Absa, Uwaiz Jassat.

Those requirements have to be compliant with sharia law, which prohibits the taking and receiving of interest and also rules out certain other practices in conventional banking.

For example, when Islamic banking clients deposit money in their savings accounts, the lender will then trade the money to earn a return on it and those returns are shared with the customers.

Jassat said this method sometimes beat the return on a conventional interest-bearing savings account.

Last year, the returns for Absa Islamic banking saving accounts were 2% higher than for conventional ones.

So it is not surprising that more people are opting to switch to Islamic banking. About 10% of Absa’s Islamic bank customers are non-Muslim. Although Absa’s Islamic banking division is relatively small, its contributions are quite significant to the parent company’s bottom line, according to Jassat.

Al Baraka, the first stand-alone Islamic bank to operate in South Africa with a full bouquet of financial products, has more than 40 000 customers.

Al Baraka, whose parent company is based in Bahrain, has eight branches nationwide, most of them in Muslim communities. Last year, total assets grew 18.7% to nearly R4.4-billion, and advances swelled 13.1%. Al Baraka’s deposit book grew 18.6% to R619.1-million and the equity finance book increased 23.1% to R126.6-million.

Al Baraka’s CEO, Shabir Chohan, said about 30% of the Muslim population — which is estimated to be more than two million strong in South Africa — was using Islamic banking products provided by local banks.

The total Islamic banking sector in South Africa is estimated to be worth as much as R12-billion. Chohan said this meant his bank had the potential to grow eight to 10 times its current size.

Absa’s Islamic banking division is eager to introduce vehicle and home-loan products. Jassat said that once more products were introduced, “customer numbers will skyrocket”.

However, if it does not move fast, it might end up eating its rivals’ dust. FNB’s Islamic banking unit already offers these products and recently launched a term-deposit product.

The CEO of FNB’s Islamic banking unit, Amman Muhammad, attributed the success of FNB’s Islamic banking products to the fact that they were underpinned by strong values and principles that, he said, covered much more than just finance.

Much like Absa, which is controlled by Barclays, FNB has its sights set on expansion beyond South Africa’s borders.

“Africa provides a large opportunity for growth,” said Muhammad. “Muslim entrepreneurs play an important role in the African economy, so the need to provide appropriate financial services through the correct channel is paramount.”