Bankers call for laws on Sharia-compliant bonds

Gulf African Bank on Kenyatta Avenue in Nairobi. Bankers have called for faster drafting and implementation of laws to allow for issuance of Sharia-compliant bonds. Photo/FILE  nation

By John Gachiri

In Summary

• Gulf African Bank chief executive Abdalla Abdulkhalik Tuesday said the regulators had taken too long before providing guidelines for issue of Sukuk bonds, which he argued could help the government to partly fund its huge financing gap.
• Tapping this pool of funds, the bankers said, would reduce the burden of interest rates on the government, businesses and individuals.

Bankers have called for faster drafting and implementation of laws to allow for issuance of Sharia-compliant bonds as an extra avenue for financing infrastructure projects.

Gulf African Bank chief executive Abdalla Abdulkhalik Tuesday said the regulators had taken too long before providing guidelines for issue of Sukuk bonds, which he argued could help the government to partly fund its huge financing gap.

“It should not take two years for a project to evolve from conception to implementation.

‘‘We want to be held accountable (by our customers) not for process but for results,” said Mr Abdulkhalik at an ongoing Islamic finance conference in Mombasa.

Sukuk bonds, the bankers argued, could be used to fund building of roads, sewer lines and other infrastructure needed by both the national and county governments.

The Capital Markets Authority (CMA) last month said it is still working on regulations to introduce a richer portfolio of Sharia-compliant products.

“In this regard, the authority continues to have stakeholder engagements designed to increase awareness on the potential issuance of Sukuk products as a means of alternative financing for infrastructure development,” said CMA acting chief executive Paul Muthaura.

READ: CMA targets county bonds with new guidelines

Bankers said the large Muslim population in Kenya makes it ideal to issue a Sukuk bond.

“Mombasa County has a large Muslim population and there is no reason why our banks should not offer Sukuks and in other counties as well,” said Suleiman Shahbal, a former Gulf African Bank chief executive.

Kenya Bankers Association chief executive Habil Olaka said a Sukuk bond for Nairobi County would would help to market the city as a financial hub for eastern Africa.

Globally Islamic finance is estimated to be valued at $1.3 trillion.

Pool of funds

Tapping this pool of funds, the bankers said, would reduce the burden of interest rates on the government, businesses and individuals.

The government is planning to issue a $1 billion sovereign bond, part of which will be used to finance infrastructure projects and repay a $600 million syndicated loan.