The journey of Islamic Banking in Kenya began two decades ago, with Absa Bank Kenya introducing La Riba Banking in 2015.

This marked the first bold step towards making the journey of Shariah-compliant banking a reality in our country.

Twenty years later, the growth of this unique proposition has set the precedent in financial inclusion, serving a diverse community of previously underserved customers in need of ethical, inclusive and faith-compliant financial solutions.

What began as a niche offering for faith-conscious consumers has evolved into a dynamic and fast-growing segment of the industry.

Today, Islamic finance accounts for approximately 2% of Kenya’s total financial market, with an impressive average annual growth rate of 19.7%.

Yet, these significant milestones remain overshadowed by the absence of a Shariah-based legal and regulatory framework designed to accommodate its unique principles and operations.

Islamic finance is not merely a religious alternative to conventional banking; it is a comprehensive financial system rooted in ethical values, fairness, and real economic activity.

It prohibits interest (riba), promotes risk-sharing, and encourages trade-based transactions.

Products such as Murabaha (cost-plus financing), Ijara (leasing), and Mudarabah (profit-sharing) are designed to ensure transparency and equity between financial institutions and their clients.

These principles resonate not only with Muslims but also with non-Muslims seeking ethical and inclusive financial solutions.

Kenya’s financial institutions have responded to this demand with enthusiasm.

Full-fledged Islamic banks have emerged, while conventional banks have launched Islamic windows or subsidiaries to offer Shariah-compliant products.

The recent innovation and launch of digital mobile financing and Shariah-compliant credit cards by Absa La Riba underscore the sector’s dynamism and growth.

This diversification is a testament to the sector’s potential to drive financial inclusion, product innovation, and economic growth.

However, the absence of a dedicated legal and regulatory framework has created significant roadblocks that threaten to stall this progress.

Because Islamic financial institutions still operate under a secular-based system, many challenges such as standardisation of contracts, resolving Shariah-based disputes and building trust in customers have emerged.

The lack of a proper framework means that banks have to conform to conventional practices of banking, which undermines the very principles that distinguish Islamic banking.

em

For example, the Banking Act limits licensed financial institutions from engaging in commercial or real estate activities such as purchasing and selling property.

This creates a structural gap for Islamic finance models like Murabaha, where banks buy goods or property and sell them to clients at a profit.

Without the legal recognition of such provisions, Islamic banks often align with conventional mortgage frameworks, diluting the distinct characteristics of Shariah-compliant transactions.

While a Shariah-compliant legal framework will enhance compliance, it also builds trust, protects consumers and embodies the very tenets of financial inclusion.

It means that a customer can be confident that their financial needs and faith are protected within the law and that financial institutions can thrive with emerging innovations.

With trust, the sector can multiply its contribution to national development.

Markets such as Malaysia, the United Kingdom and the United Arab Emirates have demonstrated the power of regulation in unlocking Islamic finance.

Kenya can draw lessons from these examples and ultimately position itself as a regional leader in the regulation and standardisation of Islamic finance.

There are many benefits to maintaining a robust Shariah-compliant framework, including more inclusion for the under-banked and enhancing the country’s competitiveness as an international financial hub.

With its vibrant fintech ecosystem, strategic location, and increasing demand for ethical finance, Kenya is well-positioned to attract international investors and become a center for Shariah-compliant financial services in Africa.

However, this will only be achievable if the regulatory environment adapts to support innovation, safeguard consumers, and uphold the principles of fairness and transparency.

And for this to happen, there is a need for deliberate collaborations from regulators, policymakers, financial institutions, and legal professionals to design and put into practice a framework that not only reflects Shariah principles but also conforms to global best practices.

Legal minds, including judges, lawyers and academics, need training in Shariah-compliant finance, forming a foundation for the sector.

Encouragingly, the sector has begun to organize itself in response to these challenges.

The recent formation of the Association of Islamic Practitioners, launched on the sidelines of the inaugural Absa Bank Kenya annual Islamic Conference, provides a much-needed advocacy platform for the sector.

The immediate mandate for this body should be to advocate for regulatory reforms, ensuring that today’s discussions turn into tomorrow’s policies for the sector’s development.

The demand for establishing a regulatory foundation is no longer optional but an urgent and essential need that will unlock the full potential of Islamic finance and sustain the sector for generations to come.

As we celebrate 20 years of La Riba in Kenya, it is crucial to recognise that the sector cannot wait another two decades for a regulatory framework to be put in place.

To set an example for Africa and the rest of the world, the time to act is now.