Driving Islamic Finance
NBK takes the bull by the horns and is well on the way to victory
By Boniface Otieno Kanyamwaya
Former US President Robert F. Kennedy once said only those who dare to fail greatly can ever achieve greatly. No one understands the meaning of this quote better than Munir Sheikh Ahmed, the Chief Executive Officer and Managing Director at National Bank of Kenya (NBK).
He says that in 2007, NBK wanted to venture into Shariah compliant banking to take advantage of the largely unbanked Muslim market which accounts for about a fifth of Kenya’s population.
Surprisingly, when the idea was floated, it failed terribly. This is because the Bank didn’t have the proper marketing plans in place for the products. They also lacked the right business units and products to offer their new customers.
Fortunately, the Kenyan government through the Finance Act of 2010 amended section 45 of the Central Bank Act to allow the Central Bank of Kenya to recognise the payment of a return rather than securities with the aim of opening up a spectrum of Shariah compliant investment in the country.
Similarly, Section 16 of the Banking Act was also amended to allow for the payment of a return rather than interest on saving products in the banking industry.
As such, in April 2013, NBK launched a new Islamic banking unit in the Kenyan market called National Amanah with a full range of financial products and services. They include Asset financing, Working capital financing, Construction financing, Trade Financing and Shariah Compliant Mortgage Financing services to tap into the growing Muslim market. The products can also be subscribed to by non-Muslims.
“Islamic finance encourages business and trade activities that generate fair and legitimate profits. These business transactions are accompanied by underlying Shariah compliant contracts that adhere to Shariah principles and guidelines,” he says.
He notes that when they launched their operations in the Kenyan market, they did not have to do a lot of customer education. This time round, they were lucky.
This is because of two fully fledged Shariah compliant banks, that were already established in the Kenyan market that had already created enough customer awareness.
He says the other advantage they had was that at street level, they already had a bigger presence than any of the other banks offering Shariah compliant products.
“We were already a big bank that is well known that has got a brand that is recognisable and trusted. This therefore helped our takeoff in that business,” he says.
Two years down the line, Munir notes with pride that the bank’s total operating income for the year ended 2014 has grown by 17 per cent to Sh9.93 billion from Sh8.50 billion in 2012. The bank’s interest income has also grown by 31 per cent to Sh10.7 billion from Sh8.17 billion mainly due to a marked increase in loans and advances.
Consequently, the bank’s total assets increased by 33 per cent to Sh123.09 billion in 2014, from Sh92.56 billion as at 31 December 2014.
Furthermore, it’s lending to customers increased by Sh26.07 billion which translates to a 66 per cent growth. Customer deposits also grew from Sh77.99 billion to Sh104.73 billion, a 34 per cent increase.
As if this is not enough, its asset book in its Shariah compliant balance sheet stands at Sh9.5 billion while liabilities stand at Sh3.5 billion.
He is however quick to note that the figures on the liabilities side is low because they are still growing their branch network in the predominant Muslim populated areas in the country where they do not have enough branches.
“As a bank, we are looking forward to concentrate more on the deposit side of the business which will be aided by the expansion of our branch networks in Coastal and Northern parts of the country,” he says.
He says that the bank is looking forward to opening three more branches which are Shariah compliant in the northern parts of the country, Coast and in Nairobi so that they can be able to tap into more retail deposits which are Shariah compliant.
“The Bank has two Shariah compliant outlets in Coast, three in Northern Kenya and two more in Nairobi and their total branch network in the country stand at 80,” he says.
Interestingly, the MD notes that even in their conventional branches, they offer Shariah compliant products the same way they offer conventional products in their Shariah compliant outlets.
So what are some of the benefits of having an Islamic banking window as part of a conventional bank as compared to having a fully-fledged Islamic Bank?
The CEO says when a bank operates in this particular manner, you avoid a lot of overheads that one would incur if he was to set up a fully-fledged Sharia compliant bank.
Secondly, you do not have to do a lot of infrastructure for it to be a separate entity.
However, he adds that one must convince his clients that he is not mixing the interest bearing part of his balance sheet with his Shariah compliant portfolio.
Munir says the introduction of these specialised products in the Kenyan banking industry no doubt comes with its fair share of challenges.
First, the Banking Act of Kenya requires banks to pay interest on savings accounts, as long as the minimum balance is maintained. This is contrary to Shariah law which strictly prohibits the payment of interest.
Secondly, as per the current CBK regulations, banks are mandated to collect tax from earnings of Islamic deposits, which is not an acceptable practice in other Islamic markets.
Finally, the model requires a more evolved legal and regulatory framework which could facilitate a quick rollout, either as a wholly owned subsidiary or a window.
However, the CEO noted that CBK is currently formulating policies and regulations to regulate the Shariah compliant products and therefore depart from the current practice of subjecting Shariah compliant banking to conventional banking regulations.
Going forward, the CEO says that he would like to see NBK’s Islamic Banking operation grow to its full potential by 2017.
“One of the biggest challenge facing banks in Kenya today is operating in a highly competitive environment of 43 banks. Each of the banks strives to get a share of the market. There is therefore the need to be a highly differentiated bank offering top notch services to get that piece. As National Bank targets to be a top tier bank in 2017, we have to go the extra mile to ensure as many as possible customers bank with us,” he says.
Munir joined the board of National Bank in August 2012. He holds a Masters of Business Administration (MBA) and Bachelor of Commerce (Hons) from the University of Nairobi. Prior to joining National Bank, Munir gained 16 years of experience working in senior positions in commercial banks across multiple geographies including Kenya, UK and South Africa.
He started his working career as an auditor with Price Waterhouse in 1990. He later moved to Esso Oil Company Ltd, Nairobi as a Financial and Planning Manager in 1993. In 1996, he moved into banking, joining Standard Chartered Bank (K) Ltd, Nairobi as a Manager, Business Finance, Strategy and Project Appraisals.
At Standard Chartered Bank, he served in different positions and regions as Manager Group Business Performance, Group Finance Division in London UK, ( Financial Controller) of Standard Chartered Kenya, Regional Head (African Finance Chartered Services), Chief Finance Officer (Consumer Bank Africa Region and Regional Head Business s Intelligence Unit), roles he served in London and Johannesburg for 5 years, Chief Finance Officer (South Africa), Director (Transaction Banking and Africa Regional Head-Kenya) and Head of Compliance and Assurance (East Africa).
He won the CEO of the Year at the Think Business Banking Awards 2014.