Your Excellency, the President of the Republic of Kenya
The Cabinet Secretary, National Treasury, Mr. Henry Rotich
Cabinet Secretaries Present
Principal Secretaries Present
Director General, Islamic Research and Training Institute
The Chairman and Board of the Capital Markets Authority
Representatives from the Media
Ladies and Gentlemen;
All Protocols Observed
Good morning and welcome to this milestone conference on Islamic Finance.
Let me start by thanking the Conference Organizers, the delegates who have traveled from far and wide, all sponsors and partners for coming together to make today’s event a reality. It is a pleasure to see all of you gathered here today with the focus of taking the necessary steps to unlock the potential of Islamic finance for the local, regional and international economies.
Ladies and Gentlemen; I’m honored to have been accorded the opportunity to kick of the conference deliberations by discussing the Development of a robust Islamic Capital Market in Kenya to Support Economic Growth in the country. As we are all aware, Capital Markets, as key drivers for long-term resource mobilization, play a central role in raising savings and investments levels.
Alluding to the remarks of the Cabinet Secretary to the National Treasury, we must consistently seek to develop niche markets where Kenya has a comparative and competitive advantage with a view to supporting the domestic capital markets to effectively position themselves on the regional front wherever we see that potential for such development is largely untapped. The Islamic financial markets are one such niche area.
Distinguished Guests; to put this into context, allow me to briefly provide a snapshot of the current status of the Islamic Finance market in Kenya.
Two fully fledged Islamic banks have been licensed, while five (5) other conventional banks are offering Shariah compliant services and products through fully operational “Islamic Windows”. The Authority has also licensed one Islamic fund manager and approved one Islamic Collective Investment Scheme. The current regulatory framework also caters for the establishment of Islamic Real Estate Investment Trusts. In the Insurance sector, one entity has been authorized to act as an Islamic insurance (Takaful) broker for general Takaful products. This is in addition to one fully fledged Takaful provider. We have also seen the launch of the first Re-Takaful Insurance (Islamic Re-insurance) in the country. Finally, one Shariah compliant Sacco began operations in 2014 resulting in representation of Islamic products and services across the financial infrastructure in Kenya.
Ladies and Gentlemen; in this context, with the guidance of the National Treasury, the joint Financial sector Regulators under the leadership of the Authority have a priority objective of accelerating the building of critical mass for the development of a significant Islamic Financial Markets industry. To this end, efforts are being applied to broadening the range of available Shariah-compliant products and services that, in the medium term, may increase Kenya’s ranking in the Islamic Finance Country Index (IFCI).
As at December 2014, the Global Islamic Finance Report (GIFC), the developers and publishers of the Index, ranked Kenya at number 22 globally, and 3rd in Africa, behind Sudan and Egypt, but ahead of South Africa, Tunisia, Algeria, Nigeria, Senegal and the Gambia. Our current index score is 2.2, compared to 14 and 6 for Sudan and Egypt respectively. Our ambition, as outlined in the Capital Markets Master Plan as launched by the National Treasury, is to increase this score to 15 which would ideally raise us to approximately position 15 globally (bearing in mind we are not the only jurisdictions develop efforts in this direction) .
In order to gain this traction, ladies and gentlemen, there are some priorities we need address:
- Firstly, level the playing field and create an enabling environment for Islamic finance to develop, while being mindful of attendant risks. This means adapting financial regulations that take into account the defining features of Islamic finance but that do not impose a disproportionate burdens on Islamic finance institutions as well as harmonizing the tax treatment of Islamic finance products with similar conventional products;
- Secondly, develop shariah compliant liquidity mechanisms to help these institutions manage their liquidity - we believe that the area in which the Islamic capital market could provide relevant products include long-dated securities that represent asset-based obligations i.e. Sukuk as well as Shariah Compliant Collective Investment Schemes;
- Thirdly, establish a cross-sectoral National Shariah Advisory Board to enhance standardization of products and services across the financial sector;
- Fourthly, undertake a vigorous consumer education campaign to enhance awareness of these products and
- Fifthly, consistently develop technical capacity at both the institutional and individual level.
Ladies and Gentlemen; Efforts are underway to improve on this segment to support the development of an enabling environment to promote the use of Islamic financial products in Kenya’s financial markets. These efforts, which began in earnest in 2011, have culminated in the establishment of a cross-sectoral Islamic Finance Project Management Office to coordinate developmental efforts across the financial services sector.
Distinguished Guests; allow me to briefly highlight the scope of the Islamic Finance Project Management Office;
In December 2015, with the support of the National Treasury and in conjunction with the Financial Sector Regulators Forum (FSRF), through technical and funding support from Financial Sector Deepening Africa (FSDA), a Project Management Office (PMO) was established to help design and coordinate a range of interventions to enhance the development of Islamic Finance Markets in Kenya.
The project will benefit from specialist consultant(s) over at least a two (2) year period to work closely with the financial sector regulators on the development of an Institutional, Policy and Regulatory Framework for the Islamic Finance Industry in Kenya. The PMO will lead coordination of a cross-financial sector program which includes regulatory reform, the establishment of a National Shariah Supervisory Board, capacity building and awareness creation. The PMO is expected to play a vital role in achieving a set of transformative actions aimed at positioning Kenya as a favourable investment destination for the Islamic world as well as the global ethical investment pools in line with the Vision 2030 aspirations of establishing Nairobi as an International Financial Centre.
Ladies and Gentlemen; the Islamic financial markets in Kenya are currently at a very nascent stage. Through the development of appropriate capital market products, this will play a complementary role to the Islamic banking, Takaful, and shariah compliant SACCO industry in broadening and deepening the Islamic financial sector.
In this regard, Ladies and Gentlemen, the Authority’s development effort is anchored on the adoption of a comprehensive, multi-pronged approach to creating a viable market for the effective mobilization of Shariah compliant funds. This include Facilitating the development of products and services related to the Islamic capital market; Creating a viable market for the effective mobilization of Islamic funds; Ensuring that there is an appropriate institutional, policy and regulatory framework for the Islamic capital markets; Enhancing the profile of the Islamic capital markets domestically.
As I conclude my remarks, Ladies and Gentlemen, I leave you with the words of Christine Lagarde (IMF MD), on Islamic fiannce: “The challenge for policymakers is to help this market reach its full potential. Unlocking the true potential of Islamic finance requires strong leadership. It also requires strong cooperation among all stakeholders. Together, we can foster a version of Islamic finance that can deliver on all its promises. That is to promote financial inclusion and stability, meet the needs of financially underserved populations, lift potential growth, and create better opportunities of all people”.
Thank You; Shukraan