Kenya's budget paves way for Islamic finance

As part of efforts to mobilise local funds and set Nairobi as a regional hub, Kenya’s government has unveiled a package of initiatives under its latest budget to develop Islamic finance in the country.

The moves could spur Kenya’s decade-old Islamic banking sector and help the government fund infrastructure in a country where Muslims account for about 10 percent of the population of some 44 million.

Finance Minister Henry Rotich outlined the steps as part of the country’s 2017/2018 budget, released on Thursday, aiming to level the playing field between Islamic and interest-based transactions.

Amendments to the Public Finance Management Act will also allow the government to issue Islamic bonds, or sukuk, as an alternative funding source.

The new initiative could prove useful for the government that has set aside billions for infrastructure, with a fiscal deficit set at 524.6 billion shillings ($5.10billion).

“The primary objective is to prepare the groundwork for a sovereign sukuk but also equally to attract corporate sukuk from the region,” said managing director of IFAAS, Farrukh Raza.

The country’s Treasury has said it is considering a debut sale of Sukuk this year, although national elections in August could delay the plans.

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The amendments will benefit Kenya’s two full-fledged Islamic banks and several Islamic windows, which have operated by way of exemptions till now.

They will be joined by Dubai Islamic Bank, which last month received approval in principle for a banking license from the central bank.