Legislators have lined up changes to the banking law to create a separate policy formulation organ within the Central Bank of Kenya for Islamic institutions with similar powers as the Monetary Policy Committee.
The Central Bank (Amendment) Bill 2023 is proposing the setting up of a Shariah Advisory Council with the same mandate as that of the MPC which is largely seen as tailored for conventional banking.
Islamic banks operate within the tenets of Islamic law or “Shariah” which prohibits interest or “riba” on loans.
Instead, Shariah-compliant banks work within the principle of risk-sharing where profits and losses from businesses funded are shared as per the ratio agreed with borrowers.
Islamic financing further prioritises lending to ventures considered “ethical and sustainable” with social benefits and prohibits funding speculative activity or those proscribed like the brewing of alcohol.
The organ will be chaired by the CBK Governor just like MPC, and comprises nine members, including the chairman.
The Bill is aimed at helping Kenya to realise its full potential in Islamic banking, according to its sponsor Yussuf Mohamed Farah (MP Wajir West).
“[It] has become necessary based on the fact that international banks offering Islamic products are keen on breaking into the financial market in Kenya to exploit the full potential of Islamic Banking,” the drafters of the Bill wrote.
