Islamic banking is for everyone30th Jun, 2017
Islamic Banking is quickly gaining popularity in the Kenya market, and banks have been quick to tailor the product accordingly.
KCB Group launched the Islamic banking product, under the name ‘Sahl’, an Arabic term which means ‘easy’.
The launch marked a big milestone for the bank, as they sought to attract more customers who otherwise felt sidelined. The launch is a huge step towards achieving the bank’s long term vision of financial inclusion for the huge population that still remains unbanked.
There are many misconceptions surrounding Islamic banking, with the most prominent one being that it is solely meant for people of the Islamic faith. As Sheikh Ibrahim Lethome, the Chairman of the Sharia board of KCB Sahl Bank explains, “Sahl Banking is not about religion. It is about offering banking products and services in conformity to Sharia for everybody. It is a service to humanity that does not affect your faith”.
As a differentiator, Sahl Banking stands out from conventional banking in that it is governed by the Islamic canonical laws (Sharia Law) which follow the teachings of the Koran. This means that all the services and every transaction under Sahl Banking follows set guidelines by Islamic scholars, and is subject to audit to ensure that all rules are adhered to.
The interpretation of Sharia law into the Sahl Banking products and services is conducted by Islamic scholars who review the products and services proposed by the Bank and approve or decline based on Sharia guidelines.
“Global regulations on Islamic banking dictate that for any institution to call itself an Islamic financing institution there must be a Sharia supervisory and advisory board whose role is to ensure that the products or services are in conformity with Sharia and certify those that conform”, says Sheikh Lethome.
Every bank that offers these products is assigned a different set of scholars to help them with the interpretation of the law.
No interest model
Sahl Banking operates on a no interest gained or given policy. Instead, the bank depends on the mutual gain achieved through the financing of various projects, which are usually vetted to ensure that they are not destructive to humans and to the environment; and that they are not promoting any ‘Haram’ (illegal) business.
Sahl Banking provides customers with a wide range of benefits, among them the shared profits and proportionate share of risks when financing assets. The mutual benefit aspect of Sahl Banking is felt by customers during transactions such as acquisition of an asset or product where the bank works to ensure that both parties involved in the transaction benefit.
The model is about transparency, accountability and trust. To ensure this, Sahl Banking ensures that all contracts entered into with customers are clear from the onset, and that there are no hidden clauses that could later impact the customer or the bank negatively. It also offers an array of products available in the conventional banks.
The concept of Islamic banking is new to the market, and there is a need for customers and various stakeholders to have information about how it works. To enlighten potential customers, KCB Bank has made decisive steps to create awareness of Sahl Banking by engaging with customers and clients through workshops, customer forums, media engagements, seminars and thought leadership articles for the purpose of exchanging ideas on Sahl Banking and Islamic banking with the Sharia board, staff members and even customers.
The bank also participates in initiatives such as the East African Islamic Finance Summit for the purpose of empowering people with information on Islamic banking both within the country and beyond.
With any new product comes a set of challenges, and Sahl Banking is not any different. One of the major challenges affecting Sahl Banking, and Islamic banking products as a whole is the problem of excess liquidity in that they are not able to invest in any profit generating ventures such as government securities as done by conventional banks.
The lack of unique frameworks by the government to regulate Islamic banking is the other challenge, leaving the Islamic banks to be regulated as other conventional banks.
Perception is the other challenge which has affected the uptake of Sahl Banking and KCB Bank is committed to pushing for change
“We are involved in a project that has been set up on the national level in collaboration with external consultants, for the purpose of developing the right and appropriate frameworks that will help overcome some of the regulatory and institutional challenges facing Islamic finance”, says Sheikh Ibrahim Lethome, Chairman of the Sharia board of KCB Sahl Bank.
The problem of shortage of Islamic scholars is one that is not unique to Sahl banking, but is universal in as far as Islamic banking goes.
As Sheikh Lethome points out, “Malaysia, which is leading globally in Islamic banking continues to experience a shortage of scholars to assist in the interpretation of Sharia. Kenya is a smaller market compared to Malaysia so for now we have enough scholars to go around, but we will need to train more as the market continues to expand.”
Despite the challenges, Sahl Banking, which was launched three years ago, continues to record steady progress.
“We have been making progress, and in terms of deposits, we have achieved our targets for the last two years; Sahl Banking has also achieved a strong brand identity as it is known in the market and beyond. We are comfortable with the progress that we are making, and we will do better as soon as the various barriers are addressed; and the country will benefit too as it heads towards becoming the hub of Islamic finance in East Africa”, continues Sheikh Ibrahim Lethome.
The bank is gaining trust among non-Muslim customers with the number currently standing at 25 per cent and more are expected to sign up.
KCB Bank is working tirelessly to ensure expansion of Sahl Banking locally and regionally as they seek to deepen their offering so as to reach the untapped market of both the Muslim and non-Muslim customers. The Sahl Banking centre is at the Kimathi Branch in the city centre, however, the service is available in all the other branches.
As Sahl Banking develops, KCB Bank is looking to incorporate Fintech services such as mobile banking to make the product accessible remotely. Other stakeholders in Islamic finance such as the government are also committed to pushing this product by bringing the players together to exchange ideas and share information.
Islamic banking is definitely a key player in the future of the banking industry, and its penetration is set to revolutionise the banking industry which operates mainly on trust. If people trust Sahl Banking, they will be more open to banking with KCB Bank and this goes further, beyond the borders.
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