Islamic banking is quickly gaining popularity in the Kenyan market, and banks have been quick to tailor the product accordingly.
Global regulations on Islamic banking dictate that for any institution to call itself an Islamic financing institution, there must be a Sharia supervisory and advisory board whose role is to ensure that the products or services are in conformity with Sharia and certify those that conform.
The model is about transparency, accountability and trust. To ensure this, Islamic banking ensures that all contracts entered into with customers are clear from the onset, and that there are no hidden clauses that could later impact the customer or the bank negatively. It also offers an array of products available in the conventional banks.
This model stands out from conventional banking in that it is governed by the Islamic canonical laws (Sharia Law), which follow the teachings of the Koran. This means that all the services and every transaction under Islamic banking follow guidelines set by Islamic scholars, and is subject to audit to ensure that all rules are adhered to.
Every bank that offers these products is assigned a different set of scholars to help with the interpretation of the law.
According to KCB head of Sahl banking Molu Halkano, the concept of Islamic banking is new to the market, and there is a need for customers and various stakeholders to have information about how it works.
“As KCB we have made decisive steps to create awareness of Sahl banking by engaging with customers and clients through workshops, customer forums, media engagements, seminars and thought leadership articles for the purpose of exchanging ideas on Sahl banking and Islamic banking with the Sharia board, staff members and even customers.”
With any new product comes a set of challenges, and Sahl banking is not any different. One of the major challenges affecting Sahl banking, and Islamic banking products as a whole, is the problem of excess liquidity in that they are not able to invest in any profit generating ventures such as government securities as done by conventional banks.
The lack of unique frameworks by the government to regulate Islamic banking is the other challenge, leaving the Islamic banks to be regulated as other conventional banks.
Another challenge is perception, which has affected the uptake of Sahl banking. KCB is committed to pushing for change
“We are involved in a project that has been set up on the national level in collaboration with external consultants, for the purpose of developing the right and appropriate frameworks that will help overcome some of the regulatory and institutional challenges facing Islamic finance,” says Halkano.
The bank is gaining trust among non-Muslim customers, with the number currently standing at 25 per cent, and more are expected to sign up.
KCB is working tirelessly to ensure expansion of Sahl banking locally and regionally as they seek to deepen their offering so as to reach the untapped market of both Muslim and non-Muslim customers. The Sahl banking centre is at the Kimathi Branch in the city centre. The service, however, is available in all the other branches.
As Sahl banking develops, KCB is looking to incorporate Fintech services such as mobile banking to make the product accessible remotely. Other stakeholders in Islamic finance such as the government are also committed to pushing this product by bringing the players together to exchange ideas and share information.
Islamic banking is definitely a key player in the future of the banking industry, and its penetration is set to revolutionise the business, which operates mainly on trust. If people trust Sahl banking, they will be more open to banking with KCB and this goes further, beyond the borders.
Molu Halkano is KCB head of Sahl banking.