Kenya has been urged to adopt Islamic microfinance business models to help lift many families out of poverty and boost financial inclusion of disadvantaged groups in the country.
Delegates from 28 countries participating in the Global Islamic Microfinance Forum in Nairobi heard that Islamic Microfinance offers greater access to interest-free capital thereby enhancing economic fortunes of disadvantages individuals and groups.
Islamic Microfinance, which is yet to gain a strong foothold in Kenya, is part of the larger Islamic Finance industry which offers services in banking, insurance (Takaful), and bonds (sukuks).
“Islamic Microfinance is mainly concentrated in Middle-East and Asian countries but it needs to expand to Kenya and Sub-Saharan Africa to help minimise poverty and financial exclusion,” said Mr. Muhammad Zubair Mughal, CEO of Al Huda Centre for Islamic Banking and Economics, which organised the forum.
He added: “There is a large population in Kenya and Sub-Saharan Africa which remains underserved by microfinance based on interest-free loans. Islamic microfinance is not meant for Muslims only but all people regardless of their religious affiliations.”
The two-day forum, the first in Africa, organised by the Dubai-based organisation is meant to enhance awareness about Islamic Microfinance and its benefits in tackling extreme poverty.
On his part, National Treasury Principal Secretary Dr Kamau Thugge said Kenya is putting in place policies and measures to govern and nurture the budding Islamic finance sector including Islamic Microfinance.
In a speech read by Treasury’s Director-General for Budget, Fiscal and Economic Affairs Dr Geoffrey Mwau, the PS said a National Shariah Advisory Board will soon be established to create and enforce standards and best practices to grow the sector.
“Kenya is keen to become a regional hub of the global Islamic Finance industry, which is projected to grow from the current Sh190 trillion shillings to Sh340 trillion by 2018,” he said.
He added: “Islamic finance promises to foster greater financial inclusion and its emphasis on asset-backed financing and risk-sharing means it could provide support for small and medium-sized enterprises.”
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Kenya does not have a fully-fledged Islamic microfinance institution yet but has two Islamic banks, five Islamic banking windows offered by conventional banks, two credit unions/Saccos, one Islamic insurance firm, one reinsurance institution and one capital markets unit trust.
Dr Amjad Saqib, Executive Director of Akhuwat, the world’s largest Islamic Microfinance institution, said that although the conventional microfinance industry has contributed significantly in reducing poverty, it has become too commercialised in the recent years.
“There is need to focus more on empowering vulnerable people rather than profits. Exploring the potential of Islamic microfinance as a plausible solution to the present challenge becomes increasingly important,” he said.
Akhuwat advances interest-free loans to millions of low-income families in 25 countries. Its business model is taught in leading business institutions including Yale and Stanford Universities in the US.
Pakistan envoy to Kenya Raza Bashir Tarar expressed hope about the uptake of Islamic microfinance in Kenya and other African countries will accelerate efforts to minimise levels of poverty.
“Since Kenya is the financial hub in the region, it is likely that if adopted in Kenya, it will also be adopted in other countries in Africa,” he said.