The Central Bank (Amendment) Bill 2023 proposes setting up a Shariah Advisory Council with the same mandate as the MPC, which is seen mainly as tailored for conventional banking.
Islamic banks operate within the tenets of Islamic law or “Shariah” which prohibits interest or “riba” on loans. Instead, Shariah-compliant banks work within the principle of risk-sharing where profits and losses from businesses funded are shared as per the ratio agreed with borrowers.
Islamic financing further prioritizes lending to ventures considered “ethical and sustainable” with social benefits and prohibits funding speculative activity or those proscribed, like the brewing of alcohol. The organ will be chaired by the CBK Governor, just like MPC, and comprises nine members, including the chairman.
Establishing specialized organs for Islamic banking is not an entirely new concept. Different countries globally have set up similar bodies to drive growth in this area. For instance, in Malaysia, one of the leading countries in Islamic finance, the Central Bank established a dedicated Shariah Advisory Council in 1997. This council offers consultative expertise on Shariah matters to Islamic financial institutions and has significantly contributed to Malaysia’s status as a global hub for Islamic finance.
Similarly, the United Arab Emirates established the Higher Sharia Authority in 2016 to standardize and regulate the Islamic banking sector in the country. This body provides guidance and governance to ensure the integrity of Sharia-compliant banking.
In the United Kingdom, despite being a non-Muslim majority country, the government has been proactive in embracing and facilitating Islamic banking. The Bank of England established a Shariah Supervisory Board to ensure Shariah compliance across the sector.
These cases demonstrate the potential success of Kenya’s proposed Central Bank (Amendment) Bill 2023, aiming to set up a Shariah Advisory Council. As these examples show, such a council can be instrumental in nurturing the growth and integrity of Islamic banking within a nation’s financial sector.