Kenya’s First Shariah-Com­pli­ant Bond

Diplomat East Africa - - Table of Contents - By ROBIN OBINO

An Is­lamic law or Shariah-com­pli­ant bond (Sukuk) aimed at re­duc­ing do­mes­tic bor­row­ing and low­er­ing in­ter­est rates will be is­sued in the next fi­nan­cial year. This comes as the coun­try chose to bor­row an ad­di­tional $750 mil­lion from its maiden $2 bil­lion Eurobond is­sued at the start of this fi­nan­cial year. Plan to in­tro­duce the bonds was launched in 2009.

Sukuk of­fers a wide range of benefits to the econ­omy in terms of liq­uid­ity man­age­ment, fundrais­ing, bal­ance sheet man­age­ment and se­cu­ri­ti­sa­tion. A mix of Sukuk ac­tively traded in the sec­ondary mar­ket helps man­age liq­uid­ity for Is­lamic fi­nan­cial in­sti­tu­tions. For in­stance, a bank with ex­cess liq­uid­ity may choose to in­vest in Sukuk which af­fords it a re­turn and can be traded as well.

Par­lia­ment is set to con­sider a rec­om­men­da­tion by its fi­nance com­mit­tee to dou­ble the gov­ern­ment’s ex­ter­nal debt ceil­ing to $28 bil­lion by tap­ping into cap­i­tal from Arab states with cash from oil, in or­der to fund the megain­fras­truc­ture projects such as the new Stan­dard Gauge Rail­way, Lamu Port, roads and power plants.

Ac­cord­ing to Henry Rotich, Cabi­net Sec­re­tary for Fi­nance, the cabi­net sec­re­tary for the Trea­sury, said the re-open­ing of the Eurobond, which is ex­pected to be com­pleted on Wed­nes­day, had given the gov­ern­ment time to pre­pare the doc­u­men­ta­tion for the Sukuk is­sue.

“We will pre­pare for Sukuk but for the next fi­nan­cial year,” he said in a state­ment. He, how­ever, did not in­di­cate the po­ten­tial size of the bond.

Is­lamic banks have grown in the Kenyan bank­ing sec­tor since be­ing the first coun­try in Eastern and Cen­tral Africa to al­low Is­lamic bank­ing, through First Com­mu­nity Bank and the GulfAfrican Bank (GAB) in 2007, cater­ing to cus­tomers who want to fol­low Is­lamic rules by avoid­ing di­rect pay­ment or earn­ing of in­ter­est - viewed as extortion un­der Is­lamic law.

GAB in­vested KSh500 mil­lion ($6.2 mil­lion) in the Sukuk por­tion of a gov­ern­ment in­fra­struc­ture bond is­sue in 2009 and re­ceived a 13.5 per cent rate of re- turn, ac­cord­ing to Cen­tral Bank of Kenya fig­ures.

The growth is so rapid that it is be­com­ing an in­te­gral part of the main­stream global econ­omy and chang­ing the fi­nan­cial land­scape. It is be­ing driven by the sus­tained in­ter­est in Is­lamic fi­nance by con­ven­tional fi­nan­cial in­sti­tu­tions. The Sukuk mar­ket is cur­rently val­ued at $270 bil­lion (Sh24.5 tril­lion).

Is­lamic bank­ing al­ready op­er­ates in nine African coun­tries but sev­eral oth­ers in­clud­ing Tan­za­nia, Malawi, Zam­bia and Uganda are in the process of li­cens­ing Is­lamic banks. The West African na­tion of Sene­gal is also plan­ning to is­sue its first sovereign Sukuk later this year

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