Non-Muslims too can benefit from Kenya’s Islamic banking
Today, we are witnessing an emergent Islamic finance industry with global assets of over $2 trillion and growing at around 10 per cent per annum, taking hold in leading international markets.
There is also a thriving Islamic capital market with issuances of Shariah-compliant asset-based securities (Sukuk) reaching to $98 billion in 2017. With these recent developments, it is pertinent to ask, does Islamic finance have something to offer to non-Muslims?
The origins of Islamic finance lie in Islamic scriptural texts that prohibit usury (interest). However, the same maxim can also be found in the religious scriptures of other Abrahamic religions, Christianity and Judaism. In fact, one expert in the field had even termed Islamic finance as ‘Abrahamic finance’.
Over the past 50 years, a modern form of Islamic finance has emerged and expanded rapidly, venturing into new countries with a myriad of innovative product offerings for household and business enterprises, built upon the traditional codified framework blended with latest international governance standards.
Islamic finance has contributed to satisfying part of this new demand for ethical financing and desire for greater financial inclusion and socially responsible investing.
In the wake of the 2007-2008 financial crisis, the asset-based nature and profit and loss sharing (PLS) mechanism of Islamic finance has garnered academic interest as a model for a more resilient and stable financial system.
Its equitable and integrated structure geared to linking finance to the real assets and to the real economy stands in stark contrast to conventional system where excessive mortgage securitisation and excessive leveraging through ever-increasingly complex and abstract financial products, unhindered by market regulators, led to a schism between ‘Main Street’ and ‘Wall Street’.
Whilst Islamic finance regulates against the excessive speculation, sale of debt and development of financial abstraction, its core value proposition is that the ubiquitous interest-bearing financial model is inherently inequitable and in the extreme cases, more exposed to exploitative practices by capital owners.
Too many African countries have suffered from the over-indebtedness imposed by colonial powers, driven by the ever-increasing burden of ‘compounding interest’.
What commenced as a small debt spiraled out of control to the extent that repayments were multiples of the initial borrowing, leading some countries to enter a perpetual debt cycle and political complaisance.
Islamic finance is intended to be complementary to the conventional finance ecosystem, attracting customers on premises of equitable profit and loss sharing.
Whilst some non-Muslims will be enticed by the equitable and ethical stance of Islamic finance, most will need to be marketed with competitive product quality and price in order to market to the non-Muslim population.
The experience of a UK Islamic retail bank has successfully attracted non-Muslim customers who were attracted on ‘price and service basis’ as the bank’s deposit saving rates were amongst the highest in the UK market.
Simon Walker, head of retail sales at Al Rayan Bank in the UK, said: “We appeal to both the Muslim and non-Muslim market. Seventy per cent of customers that came to us last year were non-Muslims.”
By embracing Islamic finance, Kenya is on its way to benefit from greater financial inclusion from the Muslim community, but there are also good reasons to believe that non-Muslims in Kenya, like elsewhere in the world, will also financially benefit.
By transcending any preconceived aversions and concerns about Islamic finance, there is no reason why Kenya that has incubated so many other financial innovations of our age, will not benefit more by opening up further to Islamic finance.
Farrukh Raza, Managing Director, IFAAS