Citi urges Kenya to reconsider Islamic sukuk move

Kenya needs to reconsider her drive for an Islamic bond as the oil glut scales down prospects at the Gulf Cooperation Council market.

Tuesday February 23 2016

Citi Bank building in Upper Hill, Nairobi. PHOTO | FILE

Citi Bank building in Upper Hill, Nairobi. PHOTO | FILE 

By EDWIN OKOTH
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Kenya needs to reconsider her drive for an Islamic bond as the oil glut scales down prospects at the Gulf Cooperation Council market.

Citi bank in its 2016 insights on Kenyan economic trends says the country faces narrowed credit options from external sources and risks sinking into heavier debt even with a sukuk option.

Citi Africa Chief Economist David Cowan said Kenya has to address its balance of payments and tame inflationary pressures to remain in the growth trajectory this year.

“The question is now how much it will cost to put a sukuk because the situation at the GCC has tremendously changed. The drop in oil prices has put it in deficit and I think it would not be advisable to rush for a sukuk now,” Mr Cowan said.

READ: Kenya revives plan to join Sukuk bond rush

Many Islamic banks who are usually capitalized trooped to the GCC last year to raise capital in the wake of oil price crash.

Conventional banks in the GCC have experienced slower asset growth as investment banking revenues in the GCC dropped by 16 per cent in 2015, twice the drop in investment banking revenues globally according to Reuters.

LIQUIDITY SQUEEZE

Moody’s investors services said banks in the six-nation GCC are increasingly challenged by liquidity squeeze resulting from low oil prices. Kenya which has been eying to raise capital from the Islamic financing has since engaged its facilitation of Sharia compliant finance products.

Last week, the country hosted delegates from East Africa for an Islamic Finance and Investment summit putting Kenya at the center of the fast growing global financial phenomenon.

National Treasury Cabinet Secretary Henry Rotich said the country was in its last steps of operationalising institutional and regulatory environment that will help facilitate the growth of Shariah compliant finance products. 

“These activities illustrate the importance of the Government’s effort in providing an enabling environment for Islamic finance to grow. The global Shariah compliant assets have exceeded more than $2 trillion (Sh200 trillion), making Sukuk market attract more non-Islamic countries, thereby making Islamic finance the mainstream of global finance,” Mr Rotich said.

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