From January to August 2022, many businesses remained cautious due to the uncertainty surrounding the elections. However, Islamic finance in Kenya made significant strides despite the challenges.
Safaricom PLC & Gulf African Bank (GAB) Partnership
One of the most remarkable partnerships in Islamic finance in 2022 was between Kenya’s telecommunications giant, Safaricom PLC, and the Islamic Gulf African Bank (GAB).
To put this into perspective, Kenya is a global leader in mobile money innovations, with Safaricom’s M-Pesa being the most dominant financial digital platform.
Through M-Pesa, users can:
- Transfer money in real-time via mobile phones.
- Save money through bank-linked e-accounts.
- Access instant credit and overdrafts without collateral.
- Conduct transactions without internet connectivity, ensuring widespread access.
With M-Pesa generating approximately USD 2.8 billion in 2021, GAB sought to tap into this vast digital market by introducing Pesa Halal, the first-ever Sharia-compliant digital savings platform.
This platform is available to both Muslims and non-Muslims, offering:
- Micro-savings and credit solutions via mobile phones.
- Instant, interest-free credit with a repayment period of up to 30 days, applying a 5% commodity Murabaha margin.
This innovation now provides Kenya’s Muslim population with an Islamically conscious digital financial platform, enabling them to leverage digital finance without compromising their religious beliefs.
Additionally, companies offering these platforms can now tap into Muslim micro-businesses, which had previously remained untapped for years.
Islamic Financial Inclusion in Kenya’s North Eastern Region
In Kenya’s North Eastern province, where the population is predominantly Muslim, 2022 saw a surge in access to Islamic-compliant financial services.
Crescent Takaful SACCO (CTS), Kenya’s first Shariah-compliant SACCO, played a key role in offering:
- Interest-free loans
- Savings services
- Takaful (Islamic insurance)
In 2021 alone, SACCOs in Kenya held approximately USD 5.64 billion in deposits and USD 5.55 billion in borrowings. Given their flexibility in credit access and lower interest rates, SACCOs remain the preferred financial institutions for individuals and small-to-medium enterprises (SMEs).
Thus, the establishment of Shariah-compliant SACCOs is a major milestone in ensuring financial inclusion for Kenya’s 5 million-strong Muslim population.
Islamic Finance Capacity Building
As Islamic finance gains momentum in Kenya, capacity building remains essential.
Recognizing this, the Kenya Institute of Monetary Studies introduced a course in Islamic Financial Services. This initiative aims to equip professionals with the necessary expertise to navigate this fast-growing global industry.
2023 Outlook and Opportunities in Islamic Finance
Although Islamic finance is thriving in Kenya’s private sector, the government has yet to fully leverage it as a source of foreign direct investment for funding infrastructure projects.
The Islamic Development Bank (ISDB), for instance, has been a key financial partner in several African countries. The bank is actively looking to expand its presence in Africa by acting as a senior lender through Private-Public Partnerships (PPPs) and grant provisions.
For Kenya, this presents an opportunity to tap into Shariah-compliant international finance, which offers cost-effective alternatives to commercial loans with high interest rates.
With 2023 ushering in a new government, potentially new infrastructure projects will arise. This creates a strategic entry point for Islamic lenders seeking market penetration. Additionally, commercial banks have the opportunity to refine their Shariah-compliant products to cater to a wider market.
Conclusion
Despite 2022 being a slow year for businesses due to elections, Islamic finance in Kenya experienced notable progress, presenting significant investment opportunities.
However, Kenya has yet to fully capitalize on Shariah-backed international finance. The Islamic Development Bank and other Islamic financial institutions could play a crucial role in Kenya’s economic growth.
Looking ahead, the steady growth of Shariah-compliant finance signals a continuous movement toward inclusive finance in the country.