The International Monetary Fund (IMF) has said that Kenya’s prudential regulations on Islamic Banking is yet to be refined to adequately cater that type of banking. This is bearing in mind that Shariah banks still offer collateral loan products that are different from conventional bank loans.
According to the latest report by the IMF, “the legal framework exhibits some gaps, prudential frameworks have not been adapted to the specificities of Islamic banking and there are also remaining gaps in the Shariah governance framework, consumer protection framework, liquidity management, resolution and safety nets,” says the IMF report.
However, the IMF warned that Kenya is also yet to come up with a Shariah-compliant deposit insurance scheme and is continuing to manage deposit insurance premiums in a single pool for all banks — a situation that could complicate compensation of depositors in the event a bank offering conventional and Islamic products collapses.
“Banks with Islamic windows are also not segregating Islamic deposits from other funds.”
“The legal framework could benefit from further amendments to clarify permissible contracts and segregation laws to minimise risks of commingling funds that can weaken Shariah compliance and public confidence,” the report says.