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Huge potential for Islamic finance in Kenya |
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Monday
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08/02/2010 |
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Source :
Arab News |
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Kenya is fast developing as the Islamic finance hub of East Africa. The Central Bank of Kenya (CBK) has already licensed two Islamic banks - Gulf African Bank (GAB) and First Community Bank (FCB) - under CAP 488 of the Banking Act of Kenya. |
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Kenya is fast developing as the Islamic finance hub of East Africa. The Central Bank of Kenya (CBK) has already licensed two Islamic banks - Gulf African Bank (GAB) and First Community Bank (FCB) - under CAP 488 of the Banking Act of Kenya.
In terms of capital and deposits, FCB, whose CEO is the experienced Islamic banker, Nathif Adam, formerly with Qatar Islamic Bank and Sharjah Islamic Bank, is the largest Islamic bank in Kenya. With a capital of 1 billion Kenya shillings (KSh), FCB is ahead of many of the 44 Kenyan banks who are required by the CBK to have the new minimum capital of 1 billion shillings by 2011. Since starting operations in June 2008, FCB has surpassed the aims in its business plan for the year ending December 2009, in some cases by 50 %.
FCB has also recently been authorized by the CBK to launch FCB Capital, which will offer Islamic asset management business and capital markets products especially Sukuk. Similarly, FCB has been authorized to act as an Islamic insurance (Takaful) broker for general Takaful products the bank is structuring in conjunction with the local Cannon Insurance Company.
FCB chairman and prominent Kenyan businessman, Hasan Varvani, declares in meeting for the arab news that:
“In our initial business plan, we were supposed to launch 4 branches in the first year, but we ended up with 9 branches. 20 months to date we have 11 branches and with the approval of the CBK, we are planning to open another 6 more branches in the next few months, including four branches in Wajir, Habaswein, Moyale and Masalani. And the total number of branches will be 17, which we think is adequate for the time being. We have invested heavily in our branch network. We have increased our projections on customer deposits by the end of 2009 which is currently 3.5 billion shillings, which is 50 % over the aim in the business plans. Our loan book similarly is good. We have broken even in terms of operational costs. We are looking forward to breaking even in terms of capital expenditure (Capex) by end of this year. Hopefully we can look forward to some dividends in 2011. The branch expansion is due to growing demand for Islamic banking services, especially retail banking products, in the country. FCB, for instance also recently introduced the Labbeyk Savings Account, a savings product for aspiring Muslim pilgrims going on the Haj to Makkah. “
And about starting to penetrate the general banking market in Kenya and attracting business from all sectors and groups he added that:”We have good exposure and activities in different sectors of the economy. For a new bank, we have 25 % of the market share in terms of 5-year mortgage loans. This is very encouraging for a start-up bank. In terms of balance sheet size we are about 30-34 out of the 44 banks. In terms of share capital, FCB is in the late 20s. The minimum share capital for banks in Kenya in 2008 was 250 million shillings go up to 750 million shillings in 2009 and to 1 billion shillings in 2011. Our capital is already 1 billion shillings. FCB currently is concentrating on our niche market of Muslim customers. But the bank is open to all Kenyans irrespective of creed or ethnic background. For instance, FCB has launched branches in Kisumu in Western Kenya which is not a Muslim dominated area. The creation of the new branches in Northern Kenya is a continuation of our commitment to reach out to our niche markets. “
He declares that FCB's objectives and targets for the next year or so are to consolidate our achievements to date in 2010. Our deposit target is 5 billion shillings by the end of 2010 from the current 3.5 billion shillings. This would be possible because we are targeting a lot of constituency development funds. We would be one of four banks in Kenya that are allowed to keep constituency development funds. These funds are allocated by the central government of Kenya to the 210 parliamentary constituencies in the country. Each one gets about 50 million shillings per annum to spend on constituency related developments and projects. By having branches in northern and eastern Kenya, we became one of four banks that have a major presence in that part of the country, and which therefore qualified us to attract the constituency funds as deposits.
FCB adding value to its Islamic banking activities and proposition in Kenya he encloses that:”Mohammed Mbaye, former deputy governor of the Bank of Tanzania has joined as an independent director. He comes to us with a lot of value addition in terms of conventional banking systems and products. This will complement Nathif Adam's experience in Islamic banking. Abdul Latif Essaje, a lecturer at the University of Nairobi, has been appointed executive director in charge of administration and will soon be joining the Bank. We are also looking to appoint a general manager with hands on experience in Islamic banking who can take control of the day-to-day operations of the bank, thus freeing Nathif Adam to concentrate on implementing the vision and the wider strategy for the bank. “
About the potential for asset management and sukuk products in Kenya and the region he said:”FCB Capital is a fully owned subsidiary of First Community Bank and is the first of its kind in Kenya and in the region to undertake Shariah-compliant investment banking activities. Nathif Adam has been in discussions with the CBK over the possibility of Kenya issuing a debut sovereign Sukuk and other Islamic financial products. The discussions also centered on the introduction of tax neutrality measures by the Kenyan government which would facilitate the issuance of sukuk in Kenya. The sukuk potential is definitely there, especially retail sukuk”.
“We expect 70 percent of issuances will be retail; 20 percent corporate issuances; and 10 percent by foreign issuers. This market will depend on CBK conditions and approvals by the Capital Markets Authority in Kenya. CBK governor, Ndungu Mjoroge, is a strong supporter of Islamic banking. Through FCB Capital we aim to deliver a full choice of alternative investment opportunities, enabling Shariah-compliant investors to construct balanced portfolios which can access a full range of asset classes.” He added.
“Through its business approach which works on an equity syndication model, FCB is confident it will play a pivotal role of directing profit-seeking capital to important niche investment opportunities.
This will particularly be suitable for important viable projects such as government and municipality supported projects which cannot be reached by state budget. Through our links with the Islamic finance fraternity globally, we expect FCB Capital to be a new fund raising channel in the form of foreign direct investment (FDI) with advantages of being reasonably priced and longer term financing suitable to infrastructure projects badly needed by our country. “Varvani said.
“FCB Capital intends to eventually structure and originate Sukuk) and Shariah-compliant equity and mutual funds; property investment funds including real estate investment trusts (REITs); project finance including public-private partnership projects through the issuance of municipality sukuk; Leasing funds, based upon equipment leasing, large assets, property, and other fixed income generating assets; structured product funds, such as trade finance portfolios; venture capital and private equity; pension products; corporate advisory and Shariah advisory.” Varvani added. |
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