February 10, 2010

Reuters-Kenya's Islamic Gulf African Bank says profitable

Reuters-Kenya's Islamic Gulf African Bank says profitable
By Helen Nyambura-Mwaura

NAIROBI, Feb 9 (Reuters) - Gulf African Bank, one of Kenya's two Islamic banks, turned profitable in the last quarter of 2009 after only about a year and a half of operations, its chief executive told Reuters.

Najmul Hassan said the bank's loan portfolio has grown to about 5 billion shillings ($64.81 million) while deposits are at 6.4 billion shillings since its launch in 2008.

"It is demonstrating that this is a viable business venture," he said late on Monday. "We have grown, so obviously we are taking share from some other banks or we are creating a new market. Both of these things are good."

The bank, in which Gulf Arab investors such as Istithmar, the investment arm of the United Arab Emirates' Dubai World conglomerate, and Bahrain-based Bank Muscat International own stakes, opened its first branch in January 2008 with $25 million capital.

However, post-election violence that wracked much of Kenya for the first quarter of 2008 prevented Gulf African from expanding significantly. Operations launched in June that year.

It now has 12 branches in five towns and is considering expansion into Nigeria, Tanzania and Uganda, Hassan said, adding that the bank's main challenge had been the lack of knowledge of what Islamic banking is all about.

The Islamic finance industry wants to grow outside its main centres in the Gulf Arab region and South East Asia to tap into Muslim minorities in Western and African countries.


Its banks cater mainly to customers who want to follow Islamic rules on avoiding direct payment or earning interest, which are viewed as usury under Islamic law.

"A lot of people think that this kind of banking is for a niche market, for Muslims, but it isn't that actually," he said.

"The key challenge is spreading the knowledge of sharia-compliant banking in the market. People are sceptical, not just non-Muslims, even Muslims are sceptical. In fact, many times they are more sceptical than the Christians."

Gulf African's mortgage product has been most popular with non-Muslims, Hassan said. The bank invested 500 million shillings in the sukuk portion of a government infrastructure bond issue last year and received a 13.5 percent rate of return.

Hassan said it was a good time for the Kenyan government to issue a sovereign sukuk as there was huge appetite in the Middle Eastern market, which he said was more liquid but had fewer options than conventional banks in the west.

"If the government can go for a sovereign sukuk both in dollars as well as Kenya shillings, not only will they find off-takers here but they will find there is a huge market potential to do a roadshow in the Middle East and be able to generate dollar-based financing from sukuks.

"There is a huge market for people looking for sharia-compliant returns to invest in sukuk. While the bond market is there, the pricing of sukuk may be slightly more competitive when compared to conventional bonds."

Kenya has delayed issuing its first ever eurobond because of the global credit crisis.

Hassan said the potential for Islamic banking in Africa, which has a sizeable Muslim population, was huge.

"Our own experience has been a very pleasant one. It shows that in the rest of Africa there's going to be huge demand and its going to grow very rapidly," he said. "We are looking at the tip of the iceberg." (Editing by Daniel Wallis and David Cowell) ($1=77.15 Kenyan Shilling)

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