Nov 4 Kenya's plans to develop Islamic finance
include a wide-ranging taxation review and the establishment of
a national sharia board, steps which could set it ahead of other
African countries aiming to develop the sector.
The country wants to build up the industry as part of a
long-term plan to turn Nairobi into an international financial
centre and as a way to help finance infrastructure projects by
building commercial links across Africa and the Middle East.
The initiatives are being led by the Islamic Finance Project
Management Office (PMO), a body setup recently to coordinate
efforts among Kenya's regulatory agencies.
The PMO has submitted an initial set of policy amendments
focused on taxation of sharia-compliant products, said Farrukh
Raza, managing director of IFAAS, an Islamic finance consultancy
which designed the PMO's framework.
"This will be the first precursor to overall industry
development by giving legal recognition to Islamic finance
transactions," Raza said.
The aim is to ensure neutrality of Islamic contracts in
areas such as stamp duty and withholding tax, with the proposed
amendments to be included in a finance bill to be presented to
the parliament next year, he added.
Kenya's decade-old Islamic finance sector includes two
full-fledged Islamic banks and several Islamic windows, but
until now they have operated by way of exemptions, and a lack of
clear rules have stunted growth, said Raza.
A second batch of policy amendments will be presented by the
end of this year, covering banking, insurance, pensions and
capital market products - including a framework for sukuk or
Plans also call for establishing a sharia governance
framework and a national sharia supervisory board, which could
be in place by the first half of next year, said Raza.
Islamic banks have traditionally practiced self-regulation
in terms of their adherence to religious principles, but a
centralised approach is gaining traction to help standardise
contracts and address consumer perception concerns.
"Over the past decade sharia compliance has been a challenge
for them. Differences in opinions have led to some issues and
these have affected take-up," said Raza.
The PMO, which has a team of five government officials
including from the Capital Market Authority and the central
bank, is also tasked with developing industry awareness and
human capital for the industry.
Kenya's National Treasury has said it is looking at the
possibility of a debut sale of sukuk, although it has yet to
finalize details for such an issuance.
(Editing by Amrutha Gayathri)