DUBAI (Reuters) - Kenya may pass legislation to eliminate tax barriers to Islamic bond issuance by the end of the year with the government looking to launch Islamic treasury bills and bonds, known as sukuk, bankers said.
Kenya, the largest economy in east Africa, has yet to tap international markets but is eyeing Islamic bonds as an option to raise funds from sharia-compliant investors, central bank Governor Njuguna Ndung‘u said in an email.
“We have received requests for a project to be identified so that finance can be raised through the issuance of a sukuk bond,” Ndung‘u said.
“Discussions are still ongoing with the Debt Management Office at the Treasury as to how this can be progressed.”
The central bank had previously issued an infrastructure bond with a sukuk portion in 2009.
But the lack of accommodative tax legislation has been a hindrance to the development of the sukuk market.
A source familiar with the central bank’s discussions, said there is a push within the government to get appropriate legislation in place by the end of the year.
“Once the regulatory framework is there we can promote a listing of sukuk on the local exchange,” the source said.
“Kenya wants to tap the international market but they are still determining whether to do it conventionally or Islamic. Once the legislation is in place, they’ll consider a sukuk.”
Africa has become a growth market for the Islamic finance industry with countries from Senegal to South Africa exploring Islamic banking and sukuk offerings.
Kenya is keen to become a hub for Islamic finance in Africa with more Islamic operations expected to launch this year.
“Globally there is positive sentiment towards emerging markets and particularly trade between Africa and the East is growing,” said Rizwan Kanji, debt capital markets partner at King & Spalding in Dubai. “It would be fair to say that Africa is looking east.”
Kenya’s relative political stability and strong growth prospects, especially given turmoil in North African states like Egypt, Tunisia and Libya, makes it an attractive investment spot.
By developing its Islamic finance industry, the nation is likely to attract further investment from the oil-rich Gulf countries
With a population of 4 million Moslems, Kenya has already made strides in the industry, being the first country in eastern and central Africa to allow Islamic banking in 2007.
There are currently two standalone Islamic banks in operation - First Community Bank and Gulf African Bank - that make up roughly 1 percent of the banking sector’s market share, central bank governor Ndung‘u said. A handful of conventional banks also provide interest-free current accounts to compete with the fully-fledged Islamic banks.
The industry will likely see more conventional banks opting for Islamic branches this year, said Gulf African Bank Chief Executive Najmul Hassan. But Islamic banking will not just target the Moslem community.
“The Moslem population is relatively small, roughly about 15 percent,” he said. “Islamic finance targets the mass population because the products and services are good for all Kenyans.”
Hassan said there is significant growth potential in the Islamic insurance, or takaful, market. Takaful Insurance Africa, the first fully sharia-compliant insurance company in Kenya, was launched last month.