Kenya's regulator has introduced new takaful (Islamic insurance) rules which will allow the entry of conventional players into the sector, part of efforts to boost capital markets in East Africa's biggest economy.
Takaful is seen as a bellwether of consumer appetite for Islamic finance products. It is based on the concept of mutuality; the takaful company oversees a pool of funds contributed by all policy holders.
This year's rush by top-rated non-Muslim countries to tap the burgeoning Islamic finance market may not be repeated next year but a new crop of sovereign entrants, mostly from emerging markets, is waiting around the corner.
The United Kingdom, Hong Kong and Luxembourg - all ranked at least AA by rating agencies - issued sharia-compliant financial instruments, or sukuk, for the first time in 2014. They gave a huge boost to a market which was once just seen as a funding tool for borrowers from the Gulf and Muslim countries in southeast Asia.
African governments are looking to sharia-compliant financial markets to attract investment from the Middle East. The trend is just gathering strength, and experts expect more funds to flow into infrastructure and other major projects.
The latest wave of finance to reach African corporations and governments is coming from the Middle East, with an increasingly large sharia-compliant component.
First-time sellers of bonds that adhere to Islam’s ban on interest are poised to revive an industry suffering its worst quarter in more than four years.
Luxembourg and Hong Kong aim to market debut offerings of sukuk next month, while , , and Tatarstan have announced plans for maiden issues. Islamic bond sales have fallen 82 percent to $2.6 billion this quarter compared with the previous three months, their lowest level since the first three months of 2010, according to data compiled by Bloomberg.
Leaning towards a dollar-denominated, five-year sukuk, using an ijara structure. South Africa is expected to launch its debut Islamic bond issue during the first quarter of 2014 as it seeks to diversify its financing sources, the chief executive of Al Baraka Banking Group told Reuters on Monday.
"There is no mandate yet but we're been advising the government. We expect the sukuk to be launched during the first three months next year," Adnan Ahmed Yousif said on the sidelines of the Global Islamic Economy Summit in Dubai.
Africa is for the first time embracing large-scale Islamic finance as countries seek to tap cash-rich Middle Eastern investors to finance their large infrastructure programmes.
The market for sukuk, or Islamic bonds, received a boost this month after Nigeria became the first major economy in sub-Saharan Africa to use the $100bn a year Islamic market, followed days later by Senegal.
Standard Chartered Plc will start offering Islamic banking in Kenya as a springboard into the rest of Africa and it may expand services in Indonesia, its global head of Islamic consumer banking said on Wednesday.
Shariah-compliant banking makes up two percent of Kenya's banking industry, split between two Islamic lenders and conventional banks with Shariah-compliant products, like Barclays Kenya.
Nigeria has issued new guidelines to oversee the operation of its takaful (Islamic insurance) industry, favoring a centralised format that is gaining favour across the Islamic finance world.
Africa's top oil producer and second biggest economy is trying to establish itself as the African hub for Islamic finance, having approved rules for issuing sukuk in March.
Over the last decade, trade between African countries and the rest of the world has grown significantly and, in particular, charting a 170% increase in trade with the GCC.
The ongoing shift by African countries from being aid-dependant to increasing trade and investment ties with the Middle East has positioned Islamic finance to play a key role in facilitating further increases in trade and investment flows between Africa and the Middle East.
A shift from conventional to Takaful is underway in Kenya.
AMS Insurance Brokers, which sells Takaful and conventional insurance, said that inquiries from both Muslim and non-Muslim clients about Takaful services have increased.