Kenya gears up to make history with Islamic bond

The sukuk would provide the Government with a cheaper way to raise the funds its needs to meet the country’s budgetary needs.

An Islamic bond works by giving investors a share of the returns that are generated by the underlying asset, rather than guaranteeing them interest, which would infringe on Islamic law.

The issuance of the bond would see Kenya join the league of countries outside the Organisation of Islamic Co-operation (OIC) that have issued a sukuk.

Other countries where the Islamic bond has made a debut include the Gambia, Nigeria, Senegal, South Africa, Sudan and the United Kingdom.

Rotich said that the growing uptake of Islamic financial services across the world signals there is a gap to be filled.

“Whereas conventional financial markets have played an important role in mobilising funds and facilitating economic development in the past, the evolving development and financing requirements of our regional economies call for greater diversification of products and scope of our financial markets,” he said.

Big leap

Estimates, as measured by Sharia-compliant assets, put global Islamic financial services at over $2 trillion (Sh204.8 trillion), representing a big leap from $150 billion (Sh15.4 trillion at current exchange rates) in the mid-1990s.

Speaking Monday during the International Islamic Finance Conference for Africa (IFCA) being held in Nairobi, Rotich said there are two banks in Kenya operating under Islamic procedures, and their asset base has grown significantly.

He added that the Treasury has been working with the Capital Markets Authority and insurance firms to introduce more products into the market that are Sharia compliant.

However, the CS noted that even though the world was increasingly embracing Islamic banking products, the uptake in Kenya has been lagging due to a lack of sufficient structures.

“We need to have a whole review of the laws to allow full Islamic banking arrangements,” said Rotich, adding that the conference would give insight into how to improve existing instruments and legislation.

If the bond is issued, the Treasury boss said it would help the country gain access to a significant number of prospective consumers of Islamic products, as well as projects that are suited for Sharia-compliant finance streams.