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NAIROBI (Reuters) - Kenya's pioneering Islamic lender First Community Bank is planning to launch an Islamic bond or Sukuk in the second quarter of this year through its newly-formed investment bank, the bank's managing director said.
Islamic banks have grown in the Kenyan banking sector since being the first country in eastern and central Africa to allow Islamic banking in 2007, catering to customers who want to follow Islamic rules by avoiding direct payment or earning of interest - viewed as usury under Islamic law.
Nathif Adam, who left his post at the head of the bank to run the investment bank, FCB Capital, said the sukuk was one of several opportunities that the new outfit will pursue.
FCB has already participated in a 1 billion shilling sukuk issue (sharia-compliant bond) from the government. The Kenyan sukuk issue was split between FCB and Gulf African.
The sukuk issue was a tranche of the government's first infrastructure bond that raised a total 18.5 billion shillings in February 2009.
Adam said his bank's sukuk would be the first independent one issued in east Africa's biggest economy.
"This is the first independent sukuk proposition. The other (infrastructure bond) was structured to just allow us to participate, and as such we cannot call it a sukuk," he said.
"Initially we are looking at a sukuk of 2 billion shillings," Adam told Reuters late on Tuesday.
The cash raised would be invested mainly in property.
FCB Capital will also launch the First Ethical Opportunities Fund (FEOF), said Adam, who quit a senior position with Sharjah Islamic bank in the United Arab Emirates to realise a long-held dream of launching Islamic banking in Kenya.
"We will be offering it to both retail and institutional investors. We want to tap the Kenyan market, previously locked out of the investment banking industry due to lack of Shariah compliant options," he said.
The bank is hoping the government will grant tax waivers to attract investors from Gulf Cooperation Council states who are not used to taxes at home, but is ready to proceed within the existing framework, Adam said.
FCB Capital also plans to create an Islamic Index for screening shares for consistency with Islamic law.
"The indices will help to reduce research costs and compliance concerns Muslim investors would otherwise face in constructing Islamic Investment portfolios," Adam said.
Njuguna Ndung'u, Kenya's central bank governor who licensed Islamic lenders after a day-long presentation by Adam back in 2007, said they were waiting for proposals from Islamic lenders on how they can structure Shariah compliant Treasury bills.
"These products will go a long way in deepening Kenya's financial markets," Ndung'u said.
Officials hope a flourishing Islamic banking industry will help attract much-needed capital from Arab states with cash from oil, in order to fund the mega-infrastructure projects.
Adam said they were already in talks with banks and high net worth individuals from states like Qatar, Saudi Arabia, UAE and Bahrain, who were keen to invest in Kenya through shariah compliant institutions like FCB Capital.
"We have seen quite a few investors from the GCC and they have been talking to us. They are asking, what can we do together? Are there opportunities available in Kenya? How do we partake in those investments?" he said.