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IFC Expands Partnership with Gulf African Bank to Support Islamic Finance and Entrepreneurs in Kenya


In Nairobi
IFC

Neha Sud

Tel: +254 2759403

Email:
nsud@ifc.org

In Washington

IFC

John McNally

Tel: +1 202 458 0723

Email:
jmcnally@ifc.org


Nairobi, April 29, 2014—Gulf African Bank became the newest member of IFC’s Africa Micro, Small, and Medium Enterprise Finance Program, which works with banks in 18 African countries to increase lending to entrepreneurs. Through the Program, IFC, a member of the World Bank Group, will provide Gulf African Bank with advisory services to help the bank offer a greater range of products to small and medium enterprises in Kenya, including many owned by women.

To grow Gulf African Bank’s business with SMEs, IFC and the bank will work on improving customer relationship management, accessibility and speed of service. IFC estimates that 39 percent of Kenya’s 134,000 formal small and medium enterprises are owned by women. As in most developing countries, women in Kenya have more difficulty gaining access to finance than men. Gulf African Bank, the country’s first Islamic bank, is addressing the problem through its Annisaa product, a women-only transaction account. By providing dedicated tellers and banking centers, as well as discounts at partner outlets; Annisaa reaches out to women who may otherwise not have access to finance.

IFC’s new investment in Gulf African Bank continues a relationship that began in 2013, when IFC invested $ 5 million equity and extended a $ 3 million trade finance facility to the bank.  The investment marked IFC’s first engagement with an Islamic finance institution in Sub-Saharan Africa.

Gulf African Bank CEO and Board Member, Abdalla Abdulkhalik, said,  “GAB and IFC will play a catalytic role in providing shari’ah compliant finance in Sub-Saharan Africa. With the expected introduction of a separate regulatory framework for Islamic Financial Services, we expect increased investment from the GCC countries.  Our partnership will help fast-growing SMEs in a manner consistent with Kenya’s vision 2030 development goals.”

Oumar Seydi, IFC Director for East and Southern Africa, said, "Small and medium enterprises represent an untapped market opportunity in developing countries. IFC works with capable partners such as Gulf African Bank to increase financial services to entrepreneurs, enabling them to grow and drive Kenya’s economy forward. Having invested in Gulf African Bank twice, IFC is confident that Islamic finance products will reach many businesses that would otherwise be excluded from banking.”
 
Since it was established in 2007, Gulf African Bank has raised awareness in Kenya about Islamic banking. The bank has fourteen branches in Kenya, offering a wide range of Shari’ah  compliant banking products and services.

IFC’s first Islamic finance transactions were in 1995, supporting leasing in Pakistan. IFC has since approved investments in 22 Islamic financing transactions to date for an aggregate amount of US$707.3 million, supporting financial and real sector projects in MENA and African countries. By investing in Islamic financial institutions; IFC aims to support financial inclusion and increase access to finance for entrepreneurs and individuals who may be outside the reach of conventional banking systems

IFC’s Africa Micro, Small, and Medium Enterprise Finance Program is implemented in partnership with UKaid from the Department for International Development.

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                       FREQUENTLY ASKED QUESTIONS:  ISLAMIC FINANCE


Islamic Finance, of sharia compliant financing, has been growing steadily since the first modern Islamic banks were established about 40 years ago.  At the end of 2013, the assets of Islamic commercial banks reached $1.8 trillion. By 2020, the value of Islamic financial assets is projected to surpass the $4 trillion mark (afDB, 2012).


A key feature of global Islamic finance is the Sukuk market, which supports private foreign direct investment flows, not only from investors in capital surplus countries (such as the Gulf Cooperation Council) but also from institutional investors in markets such as Malaysia, UK, the United States and others.  These investments are directed towards real assets and project financing.  Globally, Sukuk issuance amounted to US$119.7 billion in 2013.


IFC’s first Islamic finance transactions were in 1995, supporting leasing in Pakistan. IFC has since approved investments in 22 Islamic financing transactions to date for an aggregate amount of US$707.3 million, supporting financial and real sector projects in MENA and African countries. By investing in Islamic financial institutions; IFC aims to support financial inclusion and increase access to finance for entrepreneurs and individuals who may be outside the reach of conventional banking systems


IFC’s Islamic Finance Clients (Investment and Advisory Services)

Gulf African Bank, Kenya

Al Kuraimi Islamic Microfinance Bank
Al Rajahi Bank, Saudi Arabia


What is Islamic finance?

A core objective of Islamic finance is the economic empowerment of the underprivileged and the community at large. Islamic financial institutions promote inclusion and collaboration between parties with resources and the less privileged members of society who would otherwise have no access to finance.  Islamic finance supports investment in productive economic activity, requiring financial transactions to be linked to tangible assets. Through sharing risks and rewards of financed assets or investments in a business undertaking; Islamic finance follows a participatory model.  Islamic finance prescribes a socially responsible and ethical approach to financial transactions, focusing on financing assets involved in trade, commercial ventures and long term projects that are beneficial to society.  


Islamic Banking in Practice

Islamic banks operate various types of transactions the most important of which are:


Collection of Deposit:

Current account: The deposited capital is guaranteed and made available to the client on demand. No reward is paid on the deposit but is mainly used for transactions and safety keeping.


Investment account: Deposits remain with the bank for a certain previously agreed period. Customers open investment account to yield financial return based on trust financing. The depositor is the financing partner, while the managing partner is the bank.


Financing contracts

Murābahah
contract: an agreement whereby the institution offering Islamic financial services sells to a customer a specified kind of asset that is already in their possession at cost plus an agreed profit margin (selling price)

Mushārakah
contract:  an agreement between the institution offering Islamic financial services and a customer to contribute capital to an enterprise, whether existing or new, or to own a real estate or moveable asset, either on a temporary or permanent basis. Profits generated by that enterprise or real estate/asset are shared in accordance with the terms of the Mushārakah agreement, whilst losses are shared in proportion to each partner‟s share of capital.

Muḍ
ārabah contract:  an agreement between the capital providerand a skilled entrepreneur whereby the capital provider will contribute capital to an enterprise or activity, which is to be managed by the entrepreneur as the Muḍārib. Profits generated by that enterprise or activity are shared in accordance with the terms of the Muārabah agreement, whilst losses are to borne solely by the capital provider unless the losses are due to the Muḍārib’s misconduct, negligence or breach of contracted terms.

Ijārah
leasing contract: an agreement made by an institution offering Islamic financial services to lease to a customer an asset specified by the customer for an agreed period against specified instalments of lease rental. An Ijārah contract commences with a promise to lease that is binding on the part of the potential lessee prior to entering the Ijārah contract.

Bay'us-Salam Advance purchase
contract is an agreement to purchase, at a pre-determined price, a specified kind of commodity not available with the seller, which is to be delivered on a specified future date in a specified quantity and quality. The institution offering Islamic financial services, as the buyer, makes full payment of the purchase price upon execution of a Salam contract. The commodity may or may not be traded over the counter or on an exchange.

Gulf African Bank
Abdia Dabaso
Tel: +254 20 274 0000
Email: abdia.dabaso@gulfafricanbank.com