NAIROBI -- The Central Bank of Kenya (CBK) and stakeholders in the country's banking and finance sector have been urged to consider enacting sector-specific legislation tailored to Islamic finance to monitor and regulate Islamic finance transactions in the country.
Despite the considerable steps which the CBK has made in ensuring and recognizing the influence and positive market reception of Islamic finance since its inception, an Islamic Financing Act is urgently needed to take Islamic financing in Kenya to the next level, says a partner at one of Kenya's leading corporate law firms.
“There is no doubt that there has been growth in regulating Islamic financing in Kenya. However, this is deemed reactionary and insufficient in light of the unique requirements of Islamic financing." asserts Jacqueline Wangui of MMC Africa Law, a firm specializing in banking, capital markets and financial services among many other areas.
"It is apparent that Islamic financing cannot be properly regulated, administered and managed under the same Act as conventional commercial banks (CCBs) without siring ambiguous outcomes. The absence of specific legislation on Islamic finance is in itself a hindrance to the realization of the financial benefits of the untapped potential of this unique form of finance.”
Wangui added that the principles of Islamic finance are entrenched in Shariáh law which prohibits charging or receiving of riba/interests on loans. For purely Islamic nations, charging of riba has been prohibited at all levels, even extending to express constitutional prohibitions in some cases.
Islamic finance also excludes projects related to gambling and games of chance (maysir), dealing in forbidden commodities or engaging in excessive risk or uncertainty (gharah).
It is for this reason and to introduce certainty, that most Islamic finance transactions are asset-backed or asset-based, with the sharing of business profits and losses through shared investments.
“However, riba continues to be a murky area in the operations of full-fledged Islamic banks in a largely conventional economy. The prohibition of interest is in outright contrast to routine operations of CCBs which are in business to make a return on the interest charged for financial accommodations extended to their customers,” noted Wangui who specializes in syndicated conventional and Shariah-compliant transactions.