Shari'ah Compliance Finance, A Chat with Abdulswamad

Uptake of Islamic finance has been slow in Kenya, despite an arguably fundamental product proposition advantages of Shari'ah compliant solutions. In follow up to a 2018 Kenya Bankers Association #CEOChat with Gulf African Bank CEO @Abdalla Abdulkhalik dispelling the notion that one must profess the Muslim faith to access Islamic Finance, and in response to several questions and concerns with my clients on Islamic Finance, I sat down with Abdulswamad, a Relationship Manager with local bank in Charge of shari'ah desk to get insights on behalf of our audience on the position of Islamic finance, benefits, myths and truths on why Islamic finance could be a solution for us.

Below are excerpts of our engagements;

Q. Share with us an Outline of What Islamic Finance Looks like in Kenya.

A. Shari'ah Finance in Kenya has been around for about 15 years now, with the initial players being local conventional banks which opened Islamic products windows before we had fully fledged Islamic Financial Institutions including banks and insurance companies setting up. The uptake has been slow however, largely due to regulatory challenges but as well lack of awareness and unfavorable perceptions. Efforts are being made however to address these challenges and position Islamic Finance as model finance that will address the very many challenges we have in the market.

Q. Regulatory Challenges. Tell us more.

A. Maybe this may sound incredible but thing is, at the point when Islamic Finance Solutions were getting introduced in Kenya, it was driven more by the need to cater for the needs of the segments that couldnt be served by the conventional Financial solutions at the time, those professing Muslim faith. However, at that time we did not have enough professionals in the Islamic Finance space within the Regulatory agencies, to help design the products as per the Shari'ah Finance laws. What followed were products that did not meet the stringent requirements of Shari'ah laws with the consequence of those customers largely pulling out of those solutions. That is why you will know that most banks closed those Shari'ah windows around 2014-2016.

Q. A popular and perhaps dominant concept of Islamic banking for example is the outlawing of Interest, the so-called Riba. Is there anything really beyond that?

A. So much more. But for the purposes of this discourse, let me put it simply, Islamic Finance is about ethical financial practice and as much as possible to eliminate any form of exploitation in its design and offering. At the heart of it is a sense of cooperation to help uplift one another in principle of goodness and piety. It encompasses ethical lending, ethical investing as well as prohibition of dealings in commodities, products and services that are considered Haram. I must hasten to add that this is not to say that Islamic financial solutiuons are for muslims only, but any one who, based on these designs and features would find them better and useful. And I know they are.

Q. Loan defaults has been quite phenomenal with Covid-19 pandemic. I have had a handful clients distress over auction actions with so many loosing almost entire properties and assets acquired through Mortgages and Asset Financing. Is this an issue here with Shari'ah compliant solutions.

A. Covid-19 hasn't spared any sector. Banking industry perhaps has bore the brunt of it than any other industry because money is at the centre and core of any life or enterprises.

Beyond the mitigatory measures we have had to take as an institution to protect ourselves and our customers,fairness and ethical design around Islamic Finance, is such that parties to a contract are almost equally protected and secured. That is why when you do analyses of our books, despite the obvious challenges we have had, our profit and loss sharing principles ensures auction action is not a consideration in shari'ah solutions.

Q. Talking about Profit and loss sharing principles, share with us about profit and loss sharing in Islamic Insurance.

A. This is a whole lot of topic really, but Islamic Insurance, or Takaful is essentially a cooperation between members to contribute to cover themselves against unforeseen burden (claims) at a fee to the administrator of the fund, the Takaful Insurer. The principle is that should a misfortune befall any member, the pooled funds will be used to compensate as per the contract. However, at end of the insurable period, depending on claims,the contributors are entitled to the share of the unclaimed premuims as per agreed formula.

Q. Final thoughts

A. There is so much to talk about Islamic Financial propositions. But for now I just wish to reiterate the very important role Islamic finance plays and the ethical superiority if you allow me, that these products have over the conventional products. And so I invite everyone who is looking for banking, investments and insurance products that are carefully designed to offer comfort and peace of mind, and is built for moral and upright transactions to try us out. We know they will be glad they did.

Q.Thank you sir, I know we will continue with these conversations and enlighten our clients and audiences about options we have in the market for them.

A. Thank you. Insallah!