Ahmed Bayusuf worked for nine years as a cab driver in Nairobi. After saving enough money, he invested in a coffee shop. Now, he’s the store manager at Books First.
Bayusuf has worked hard to manage his money well. He’s also a strict Muslim and, as such, doesn’t believe in making money if he hasn’t worked for it. For Bayusuf, that means an interest-earning bank account is off-limits, some interpretations of Muslim law state. That’s why he was thrilled when banks specializing in Muslim-approved accounts opened in Nairobi.
“Now, I don’t have to worry about accumulating riba,” Bayusuf said, using the word that, for Muslims, defines interest. “I also know that my money is being invested in compliance with the Islamic way.”
Islamic banking isn’t just appealing to Muslims, Bayusuf said. Even for people of other faiths, the system offers low-risk investments.
Conventional banking has for many years been the monopoly in the financial sector. Despite rapid technological advancements, options in banking have remained limited. That changed about five years ago, when Barclay’s Bank offered Nairobi’s first interest-free banking options, in accordance with Shariah, the law that governs Islam.
Since then, people in Kenya have shown a preference for Islamic banking, said Abubakr Athman, a business analyst with TalentRecruit Kenya Limited. The growth in the Islamic banking industry has been such that Athman says it could replace conventional banking in the future.
In 2007, Gulf African Bank and First Community Bank joined the scene with the first fully Shariah-compliant institutions in Kenya. Now, there are nine banks offering interest-free options. Other services that attract customers include free accounts with minimal opening fees, no ATM fees, no maintenance charges and flexible loan payments.
Fahd al-Guthmy, an official at Chase Bank’s city center branch attributes the success of Islamic banking to how easy it is for people to utilize the services. The industry has grown 15-20 percent each year over the past two decades, he said.
The Shariah-friendly banks offer special accounts for charity (a requirement of Shariah), and many offer sayyidah — “woman of honor” — accounts. The accounts are advertised as a means of empowering women through Shariah-compliant investment opportunities. Customers can also open special savings accounts for the hajj, the pilgrimage to Mecca, the Muslim holy city, that all able-bodied Muslims are expected to make at least once in their lifetimes.
Despite all the hype surrounding Muslim banking, the industry is still in its infancy. Misconceptions about the banking method abound. For example, bankers at Shariah-friendly branches must remind customers that there’s a difference between interest and profit. Islam forbids receiving a financial advantage without giving a counter value but it’s acceptable to have a financial gain as long as an effort is made.
Some Kenyans avoid the banks, assuming that they’re only for Muslims but the banks accept customers of any religion.
Muslim religious leaders have had disputes over details of how the banks operate.
Despite the challenges, analysts say the future of Islamic banking is bright.
“The industry has transformed the banking sector,” Athman said. “Many conventional banking customers have flocked into Islamic banking, clearly seeing the benefits on offer.”