Islamic banking grows in Kenya

By Hussein Jiva, Written for UPI

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.”

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Barclays Kenya launched Islamic products

Barclays Bank of Kenya Ltd (Barclays Kenya) has unveiled innovative Shariah compliant personal and vehicle finance products: La-Riba Personal Finance, and La-Riba Vehicle Finance.

As the first bank to launch Islamic products in Kenya, Barclays is committed to enhance the Islamic banking offering to ensure customers enjoy a rewarding banking experience, said the regional managing director of East and West Africa, Adan Mohamed.

Mr. Mohamed observed, “At Barclays Kenya we continuously look at ways of enhancing our financial products and services to ensure we anticipate and meet the evolving needs of our customers – this is key to our strategy.

“The products we are launching 13TH, February, 2010 are aimed at meeting the financial needs of customers and small business owners who need more specialised products than what conventional banking can offer.”

Customers will be able to purchase household goods and equipment under the La-Riba Personal Finance product, while La-Riba Vehicle Finance will be used to support customers to buy new and used vehicles.

Mr. Mohamed added, “The products were developed in consultation with Barclays Shariah Advisory Board and are Shariah compliant.”

The Regional Managing Director said that the product is based on Murabaha mode of financing which entails a cost plus profit.

He explained, “It is not a loan given on interest but sale of a commodity based on price and an agreed profit.

“Barclays Kenya first buys the goods, takes possession, and then resells it to the customer at a higher price representing the cost plus profit margin.”

He added that at the point of purchase, the client will know the specific cost, profit, and re-payment period.

Customers can purchase goods worth a minimum of Khs 50,000 and up to a maximum of Khs 1 million. Customers who bank at Barclays Premier Life and Barclays Premier Centres can access goods worth Khs 1.5 million and Khs 4 million, respectively.

The products can be accessed throughout the entire Barclays Kenya branch network and dedicated La-Riba Suites.

Mr. Mohamed added that Barclays Kenya has partnered with Nakumatt Holdings, CMC and DT Dobie to offer their goods to customers.

Source : aibim