Opening the Floodgates to Islamic Finance in Kenya

Africa Law Partners was founded in 2019. The law firm is a boutique practice whose area of focus is corporate and commercial law in Kenya.

In recent years, Islamic Finance has grown rapidly across the world. By conservative estimates, Islamic finance is estimated to have over $2.88 trillion of assets globally. It is offered in over 80 countries and is estimated to grow at around 10-15% a year.

Despite a significant slowdown in 2020 due to the COVID Pandemic, the market is expected to grow to $3.69 trillion by 2024.

Islamic finance also commonly referred to as Sharia-compliant finance, involves the delivery of financial services in conformity with the principles of sharia law. The fundamental principles that govern Islamic finance include the prohibition against riba, gharar and maisir, and haram industries.

Other central principles to Islamic finance include compliance with the Shariah, segregation of Islamic and conventional funds, accounting standards, and awareness campaigns.

Islamic finance deals with most financial services, including banking, insurance and capital markets. While it has been used to finance huge infrastructure projects, it has also been used to fund small and medium-sized enterprises thus having a positive impact on smaller businesses.

In view of the massively important role played by small businesses to developing nations, Islamic finance has a far-reaching impact on the economy. Other advantages of Islamic finance include:

   1. Financial inclusion

World Bank defines financial inclusion as ‘Financial inclusion means that individuals and businesses have access to useful and affordable financial products and services that meet their needs – transactions, payments, savings, credit and insurance – delivered in a responsible and sustainable way.’

The conventional banking system is based on paying/receiving an interest which is strictly prohibited by Shariah Law. As such, Muslims refrain from conventional banking. This has resulted in many Muslims remaining unbanked and unable to access financial products and services. Islamic finance permits Muslims to participate and benefit in the financial system.

Despite being based on Shariah, Islamic finance is not restricted to Muslims only and is available to non-Muslims. In fact, there have been innumerable occasions where an Islamic finance product has been attractive to potential investors, even when they are not motivated by religious reasons.

   2. Financial Justice

Financial justice is a fundamental requirement in determining whether a product is shariah-compliant. Islamic finance requires that risk is shared between the bank and the customer. A lender must therefore carry a proportional share of the loss of a project if it expects to receive profits from the project. This brings about equitable distribution of income and wealth.

   3. Discourages speculation

Due to the fact that speculation is prohibited, investments are approached with a slower, insightful decision-making process with thorough audits, analyses and due diligence. This has resulted in reduction of risk and greater investment ability. This was evident during the global financial crisis when Islamic finance products proved less volatile.

While Islamic finance has been vibrant in Muslim-majority countries particularly in South-East Asia and the Middle-East, it has, in recent times, gained traction throughout the rest of the world particularly in the United Kingdom since the UK Government took a keen interest in the industry.

Noting the benefits of Islamic finance, the UK Government developed a work programme to make the United Kingdom’s financial services regulations compatible with Islamic Finance.

One such way was to accommodate Islamic finance products in existing legislation and regulations governing conventional financial instruments and putting Islamic products on the same tax footing as their conventional counterparts.

The latest Islamic Finance Country Index ranks the UK 17th of 48 countries in terms of its overall Islamic finance offering. This puts it in first place in Europe and in first place among non-Muslim-majority nations. Many firms, Islamic and non-Islamic, see London as an important Islamic finance global centre to such a great degree that products developed in London are being marketed in Muslim majority countries in the Middle East.

Kenya’s Islamic finance industry is regarded as somewhat developed with immense potential for growth. Kenya has made some legislative amendments and new regulatory frameworks that have brought about the development of Takaful Retirement Benefits Schemes, shariah-compliant finance products and taxation exemption for Islamic finance products.

However, it seems that Kenya needs to do more to further stimulate the market. Per the Islamic Finance Country Index 2019 rankings, Kenya ranks 24th of the 48 countries. This is a drop from the 2018’s rankings which had Kenya at 21st. This appears to be a noteworthy setback as Kenya, East Africa’s largest economy, would want to position itself as the region’s Islamic banking hub to profit from its apparent benefits and provide its 5.2 million Muslims with better access to Islamic finance services.

Further, in order to meet the Big 4 Agenda and Vision 2030, Kenya should hasten structural, legal and regulatory reforms to further enable Islamic finance services and also begin issuing sukuks at the earliest possible time. Sukuk also referred to an Islamic bond, is an instrument for raising capital and is tradeable on the securities exchange. Sukuk may be used to finance projects around Vision 2030 and the Big 4 Agenda, such as infrastructure and health projects.

Enabling an Islamic finance environment will enable Kenya consolidate its status as the leading trade hub in the region and the gateway to East Africa. Kenya has already made significant strides at enhancing the ease of doing business in the country. The World Bank’s Ease of Doing Business Index 2020 ranked Kenya at number 56. This is an improvement from 2019, 2018, 2017 and 2016 where Kenya was ranked 61st, 80th, 91st and 108th respectively. Mauritius, Rwanda and Morocco are the only African countries ranked ahead of Kenya.

There is need to open the floodgates to Islamic finance in Kenya. Industry stakeholders and regulators ought to collaborate to demystify Islamic finance by way of regular training and workshops on Islamic finance concepts.

Kenya also requires supportive Government policies to create a fiscal and regulatory framework to broaden the market for Islamic finance products.

Financial Institutions Set For Change

Change management is defined as the methods and manners in which a company describes and implements change within both its internal and external processes.

The primary role of a traditional bank providing financing and capital is set to be challenged further in a post COVID-19 world by non-banks, which predicts that alternative providers of capital are set to become an even more important part of the global financial system.

In the last 10 years, aggregate lending in USD by non-banks has outstripped the pace of growth of traditional lenders, with non-banks seeing a compound annual growth rate of lending of 2.3%, compared to 0.6% CAGR for banks.

This trend is likely to accelerate as declining core capital ratios – caused by asset impairments resulting from the COVID-19 pandemic – will limit the lending capacity of banks, particularly in Europe.

Non-traditional sources of finance such as private equity, sovereign wealth funds, credit funds and governments themselves will need to step into the breach to finance the recovery and its aftermath.

In 2019, non-banks – including private equity funds and sovereign wealth funds – lent 41 trillion dollars compared to the 38 trillion dollars lent by traditional lenders.

In particular, the analysis shows that private debt has seen substantial growth, which is set to propel the asset class into a significant category of non-bank lending. Since 2010, private debt has been growing with 11% CGAR.

For insurers and asset and wealth managers, the challenges are equally daunting.

The report argues that a combination of near zero interest rates and the rise of digital-only players will create tighter margins across product portfolios, thereby emphasising the need to digitise rapidly, gain cost efficiencies and register real gains in productivity.

All of this will have to be completed as governments mandate more spending and reporting on ESG initiatives.

Those that fail to do so are likely to be caught in the wrong end of the coming wave of deals and restructuring.

The Case for Regulatory-driven Diversification in Ship Finance

In the dynamic world of maritime commerce, ship finance plays a pivotal role in supporting the global shipping industry. Over the years, regulatory changes have significantly impacted the way ship financing operates, prompting industry participants to consider regulatory-driven diversification as a strategic move. This article delves into the reasons behind the case for regulatory-driven diversification in ship finance and its implications for the industry.

Understanding Ship Finance and Its Significance

Ship finance is the process of providing capital for the acquisition, construction, or operation of ships. It serves as the lifeblood of the maritime sector, enabling shipowners to invest in vessels that drive international trade and economic growth. Traditional ship financing mechanisms include bank loans, private equity, leasing, and export credit agencies (ECAs). However, the landscape is evolving due to various regulatory factors.

Regulatory Challenges in Ship Finance

The shipping industry is subject to a multitude of international and regional regulations, such as environmental standards set by the International Maritime Organisation (IMO) and financial regulations from bodies like the Basel Committee. These regulations aim to enhance safety, reduce emissions, and ensure sustainable shipping practices. While commendable, these regulations can pose challenges for ship financiers, affecting their risk profiles and profitability.

Case for Regulatory-driven Diversification

Mitigating Risk: Regulatory changes can lead to uncertainty in ship financing, impacting investment returns. By diversifying across different financing models, such as exploring alternative financing sources like green bonds or public-private partnerships (PPPs), ship financiers can mitigate risks associated with regulatory shifts.

Capitalising on Sustainability Trends: Environmental regulations, like the IMO’s sulphur cap and carbon intensity requirements, are pushing the industry toward cleaner practices. Financing sustainable and eco-friendly vessels aligns with these trends and opens doors to new markets. Diversification into financing “green” ships not only supports regulatory compliance but also attracts environmentally conscious investors.

Enhancing Resilience: Relying solely on traditional financing avenues could make shipowners vulnerable to sudden regulatory changes. Diversification allows them to weather unforeseen regulatory shifts without significant disruption, ensuring business continuity.

Tapping into Innovation: Regulatory pressures stimulate innovation in ship design, propulsion systems, and operational efficiency. By diversifying funding to support these innovations, ship financiers position themselves as enablers of progress, fostering collaboration between technology developers and industry players.

Implications and Strategies

Collaborative Partnerships: Shipowners, financiers, and technology providers can collaborate to develop innovative financing models tailored to the evolving regulatory landscape. This could include performance-based contracts that align with emission reduction targets.

Data-driven Decision Making: With increasing regulations come stricter reporting requirements. Ship financiers can harness data analytics to assess the financial implications of regulatory changes and make informed diversification decisions.

Educational Initiatives: As regulatory-driven diversification gains importance, educating stakeholders about the benefits and strategies becomes crucial. Webinars, workshops, and industry conferences can disseminate knowledge and foster understanding.

Flexible Financing Structures: Ship financiers can structure deals that allow adjustments in line with changing regulations. This flexibility can mitigate risks and ensure that financing arrangements remain viable over the long term.


In an era marked by dynamic regulatory changes, the maritime industry must adapt its financing practices to ensure sustainability and growth. Regulatory-driven diversification emerges as a strategic imperative, enabling ship financiers and owners to navigate uncertainty, capitalise on sustainability trends, and foster innovation. As collaboration and innovation take centre stage, those who embrace these changes are poised to not only weather the storm of regulatory shifts but also thrive in a transformed ship finance landscape.

Driving Ambition Behind Green Finance

The green finance transition to a clean, low carbon and resilient economy is a multi-billion pound investment opportunity and we want businesses to take full advantage of it. The United Kingdom has long been regarded as a leading global financial centre, with a world leading stock market featuring nearly 80 green bonds listed on the London Stock Exchange.

Since setting up the Green Finance Taskforce, the government has been taking concrete steps to strengthen our green finance capability. The government and City of London will co-fund a new Green Finance Institute that will act as the focal point for future UK green finance activity.

The government has also announced changes to pensions regulations so that trustees will have to set out how they consider the financial risks and opportunities arising from climate change.

Raising Awareness and Increasing Engagement in Green Finance

As part of Green GB Week there will be a dedicated Green Finance events programme with activities spread across the week. The aim of these events is to raise awareness of the green finance agenda and the role of financial services in unlocking investment into environmentally and socially-beneficial technologies and infrastructure in the UK and internationally.

The official Green Finance Day agenda includes:

  • a Market Opening at the London Stock Exchange with a speech from John Glen, Economic Secretary to the Treasury
  • a full day programme at the Tate Modern coordinated by HSBC, including sessions on women in sustainable finance, greening your pension fund, integrating climate risk into investment decisions and building capacity in emerging markets
  • a Climate Resilience Summit led by Willis Towers Watson

The Financial Conduct Authority will lead a half day workshop on supporting green finance innovation, and BNP Paribas will host a careers event to highlight different finance career opportunities to students interested in sustainability.

Catalysing Investment in Clean Tech

The government will be investing up to £20 million alongside at least £20 million from private investors in a new venture capital fund called the Clean Growth Fund. It is only through innovation, nurturing better products, processes and systems that we will see the cost of clean technologies come down. This new fund will aim to catalyse the market and leverage private sector funding to ensure these innovative clean technologies can bridge the valley of death and achieve impact at scale. On 17 October, we published a Request for Proposals for fund managers.

Boosting Investment in Green Infrastructure

BEIS is working with the Infrastructure and Projects Authority to explore how best government could produce meaningful data setting out which infrastructure projects can be considered ‘green’. This would increase transparency, illustrating the government’s commitment to leading by example in tackling climate change, and showcasing the opportunities available to investors looking to place funds in green projects.

The government will host a national conference followed by at least 5 regional workshops – bringing together local authorities, cities, investors and civil society to help build partnerships to start delivering the pipeline of projects currently being developed at local level. This will help connect investors and the wider finance sector to local projects, and increase the role that regions and local players can have to boost the development of green infrastructure. The government will be working in partnership with UK100, Leeds City Council and more to set up this ambitious programme of work, which will be delivered throughout 2019.

Supporting Consistency and Comparability in The Sector

The British Standards Institution will be developing two new United Kingdom-led, internationally relevant, PAS documents in Sustainable Finance to increase confidence in, and understanding of, sustainable investments and activities. A new Strategic Advisory Group chaired by Peter Young, Trustee and Chair of the Green Purposes Company, has been established to provide strategic direction for BSI’s wider Sustainable Finance Standardisation Programme. This work was commissioned by ministers in the Clean Growth Strategy and is being co-funded with the City of London’s Green Finance Initiative.

BSI will also be leading a new International Organisation for Standardisation Technical Committee to develop international standards on Sustainable Finance, informed by the United Kingdom-led PAS work. This demonstrates the prominence of United Kingdom thought leadership globally, and will contribute to meeting the objective we set out in the Industrial Strategy to become the standard-setters in green finance.

Global Leadership and Building Capacity

Leadership on green finance is further demonstrated by the new PACT, a £60 million BEIS-run technical assistance programme to share United Kingdom skills with partners around the world. The first PACT projects strengthen collaboration between the United Kingdom and China on green finance, with a focus on harmonised standards for green bonds, analysis of green asset performance, advice on TCFD implementation and supporting the set-up of a new China Green Finance Centre.

Women in Finance Corporate Charter Drives Change

A corporate charter is a written document filed with the Secretary of State by the founders of a corporation. It details the major components of a company, such as its objectives, structure, and planned operations.

Over 350 financial services organisations have now signed up to the Women in Finance Charter, with today’s signatories bringing the total coverage of the Charter to over 800,000 people.

The Treasury’s Women in Finance Charter asks financial firms to commit to taking action to support the progression of women into senior roles, including setting their own gender targets.

The 21 newest signatories include investment firms Allianz Global Investors and Natixis, and business-banking tech company Tide.

Alongside this, new research from New Financial finds that the Women in Finance Charter is leading to greater engagement on gender diversity at the highest levels in those organisations which have signed up to it.

Two-thirds of the signatories surveyed believe being a Charter signatory will drive permanent sustainable change in their company and across the financial services industry, with the majority of the rest expecting to see a shift in their own organisation over the next five years.

The research also found that this is not just a ‘women’s issue’ but a business issue, with nearly all respondents seeking ways to involve men in their Charter commitments. Four-fifths of respondents are also seeking to improve their wider diversity as well as their gender balance, most commonly focusing on ethnicity, LGBT+, disability and socio-economic background.