We will be part of Somalia’s stability with our banking products – KCB

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By Ayan Abdi Diriye

The bank has presence in South Sudan, Tanzania, Burundi, Rwanda, Uganda and Kenya as well as a representative office in Addis Ababa, Ethiopia. We will use our experience of operating in post war scenarios to make an informed and well-structured entry into Somalia, just like what we did in South Sudan.

KCB Bank is mooting entry into Somalia with her Islamic finance proposition, a concept   rapidly taking shape in the modern fiscal landscape with institutions angling to claim a share of this growing segment.

In Kenya where the bank is the largest bank by asset was a key pioneer in championing the satisfaction of this financial need and meeting the growing demand for ethical and innovative financial products. The Bank is set to deepen its outreach with Islamic Finance in the country and further afield.

The bank which has grown the product base in Kenya and other East African subsidiaries, shall in the future venture into Somalia where majority are Muslims and financial inclusion is still very low.

Speaking exclusively to The Somalia Investor Magazine, KCB head of Islamic Banking Jaafar Abdulkadir, said the concept of Islamic banking is now taking shape in most African countries as people get to understand its model.

“Islamic Finance is just like any other financing model offered for financial intermediation except that is structured in a way that adheres to the Islamic Shariah principles that are primarily sourced from the Holy Quran and the teachings of the Prophet Mohamed. KCB was among the first banks to avail sharia compliant  products and we have had a good uptake so far since there is a growing demand for it and governments are keen to embrace it for the purpose of promoting financial inclusion,” said Mr Abdulkadir who is also  chair of the Kenya Bankers Association sub-committee of Islamic Finance.

He said the expansion of Islamic banking is good for the economy as it attracts investors who find an additional reason to invest in the financial sector as product innovation space is widened and prospects of higher returns exists in such a market.

The bank has presence in South Sudan, Tanzania, Burundi, Rwanda, Uganda and Kenya as well as a representative office in Addis Ababa, Ethiopia. We will use our experience of operating in post war scenarios to make an informed and well-structured entry into Somalia

KCB expands to new markets with innovative solutions to cater for the financial services needs of the customers and empower them to create and sustain enterprises that makes an impact economically and socially.

“Somalia has huge potential in construction, fishing, livestock and tourism. We want to be the instruments of economic transformation there because having an advancement in economy is a key driver for peace in the country. As we create more opportunities for growth, the prospects for peace will definitely increase….we are confident we will make a mark there just like we did in South Sudan about ten years ago. KCB Bank Ltd, head of Islamic Banking, Jaafar Abdul

The bank has since secured entry into Ethiopia making the planned venture into Somalia and even Djibouti no longer a remote idea.

Muslims will easily connect with its principles and the faith. The product is also available to the non-Muslims. Unlike conventional banking, it does not support any undertaking in investments considered non permissible   like alcohol production, arms trade, human trafficking among others.

“We need to demystify the concept of Islamic Finance because of the way it prohibits the provisions of interest, many may assume it is free financing arrangements. It is all about transparency and fairness where the borrower and the lender would want to share profits and losses. We finance specific ventures as opposed to just giving the borrower money to go and carry out their business venture,” Mr Abdulkadir said.

The Shariah model also does not allow gambling or engagements in highly speculative ventures as well as running commercial transactions without clearly stipulated contractual obligations and expectations.

Apart from the challenge of misconceptions about it being an exclusive for Muslims and erroneously viewd as a charitable banking model since Islam is well known for charity, compassion and promotion of universal brotherhood, the concept needs trained human capital. KCB will be adequately prepared as we consider venturing into Somalia as the challenge could be bigger in the market that has had political instability stretching two decades.

Globally we have some challenges over the universal interpretation of the sharia with some instances innovations being cited as compromising the dictates of the Sharia Standards and guidelines.

“I tend to think we are more or less in Somalia already because we are already serving the border town of Mandera as a bank. It may not be certain to confirm when we will be in Mogadishu but that is a plan still under consideration. We will help the people of Somalia create wealth and investments because the market potential there is huge and with the establishment of our Islamic banking business, we are on track to expand into new territories with the new products.” Mr Abdulkadir said.

The model will also be a beneficial approach to the country in dire need for investments as its adherence to the financing of just investments has a bigger ripple financial effects with a stretched value chain.

Islamic finance for example would rather fund the supply of raw materials for house construction than just advance money for an individual with chances of diverting the funds high. In the financing of materials for construction, there is an assurance of added value as jobs will be created in the process.

The borrowing parties are also required to clearly understand the terms of the credit before making a commitment to it contrary to the quick commitments made in the commercial banking arena where borrower sign on small prints without full understanding of what they are committing to.

KCB’s Islamic banking model was re-launched and named ‘SAHL’ in 2015. The word is drawn from an Arabic term that means easy and it symbolizes the bank’s commitment to make it easier for people to interact with the product.

The products are tailored to suit the various segments of customers with facilities ranging from deposit and investment account options, working capital, consumer financing, project finance and mortgage, assets, and can facilitate trade finance in Kenya and outside Kenya.

The bank has had about one third of clients taking up Islamic finance products being  non- Muslims reflecting  the global trend where about 35 per cent of those who seek Shariah compliant products do so purely because of ethical, moral and transparency considerations rather than religion alone.

The plans to venture into Somalia is driven by the need to take a strategic position in line with the future economic prospects of the rebuilding nation. Apart from her oil and gas deposits, Somalia has a large coast line with shipping prospects and ability to play a bigger role in the marine transport once security is restored in the country.

“Somalia has huge potential in construction, fishing, livestock and tourism. We want to be the instruments of economic transformation there because having an advancement in economy is a key driver for peace in the country. As we create more opportunities for growth, the prospects for peace will definitely increase. I spoke to the governor of the Central Bank of Somalia and he was very positive about our plan so I am confident we will make a mark there just like we did in South Sudan about ten years ago.” KCB Bank Ltd, head of Islamic Banking, Jaafar Abdul

KCB will join other corporate giants who have taken the bold step to take their business ventures into Somalia. Others include Coca Cola, MasterCard, Takaful Insurance of Africa and Hass petroleum.