The Central Bank of Kenya headquarters in Nairobi. [Photo/ techweez.com]
The International Monetary Fund (IMF) has warned that growing Islamic finance in Kenya is happening without proper protection of depositors like in conventional banking.
IMF says in a new report that Kenya is yet to refine its prudent regulations to cater for Islamic banking despite the fact that Shariah banks are offering loans that are collateralized differently from ordinary banking.“The legal framework exhibits some gaps, prudential frameworks have not been adapted to the specificities of Islamic banking and there are also remaining gaps in the Shariah governance framework, consumer protection framework, liquidity management, resolution and safety nets,” says the IMF report.It said Kenya is also yet to institute a Shariah-compliant deposit insurance scheme and continues to manage deposit insurance premiums in one pool of banks. This, IMF said could lead to a situation that can complicate compensation of depositors in case a bank offering conventional and Islamic products collapses.“The legal framework could benefit from further amendments to clarify permissible contracts and segregation laws to minimise risks of coming funds that can weaken Shariah compliance and public confidence,” the report says.Kenya, the international funder said should clarify grey areas in Islamic finance as it drafts amendments to the banking regulation as promised in the 2018/2018 budget.President Uhuru Kenyatta recently signed into law some of the proposed amendments, including a refinement of the Stamp Duty Act to provide for tax neutrality of Islamic financial products to enable them compete with similar conventional products in the Kenyan market.Gulf African Bank, First Community Bank and Dubai Islamic Bank are the three pure Islamic banks operating in Kenya.