The consultancy firm focuses on creating awareness by providing advisory and training on Islamic banking and finance
How much do you understand about Islamic Financial industry? While Islamic finance can indeed be complex and may not be well understood by individuals who are not familiar with its principles and structures, key initiatives have been unveiled to develop Islamic finance in the country. For instance, the Finance Act 2017 has several provisions aimed at mainstreaming Islamic finance instruments in Kenya. It also has a number of targeted measures designed to support the growth of Islamic finance in the country.
Financial institutions have also come forth to offer Islamic financial products available to every individual, irrespective of their religious leanings. According to Abdi Shakur, chief executive officer at Sulh Consultancy, as the industry continues to grow, efforts to simplify and communicate its principles to a broader audience may contribute to increased understanding.
Consultancy firms have also come up, to train and create awareness about Islamic finance. For instance, Sulh Consultancy was established in 2020 with the aim of providing a wide range of consultancy services to its clients. It for instance endeavors to expound, reach and create awareness among Kenyans, especially the non-Muslims; about Islamic finance and that it benefits Kenyans of all faith. “At Sulh Consultancy, we do trainings to help people who have difficulties in understanding the Islamic Financial industry as well as explaining to the general public the role and importance of Islamic finance in Kenya,” says Abdi.
The inspiration towards starting Sulh Consultancy was based on the lack of enough manpower – Knowledge wise- and Islamic product development. “There are only a handful of people who have studied Islamic finance in Kenya.” Led by a team of experts, Sulh Consultancy therefore aims at providing advisory and training on Islamic banking and finance to help people understand the concept.
Why Sulh Consultancy?
Established during the Covid-19 period, the consultancy firm has been able to navigate through and has grown steadily both in terms of client base and expertise. One of the reasons behind this growth is that there are only a few companies in the country focusing on creating awareness about Islamic finance.
“Our unique product offering also sets us apart. We generally approach institutions offering Islamic finance, advise them on product development, train their staff, and thereafter, do sharia auditing on a quarterly basis.”
Product and Service Offering
One of the services offered by Sulh Consultancy is Islamic finance mediation and arbitration. There is no doubt that alternative dispute resolution is a preferred means of dispute resolution. Owing to the fact that most Islamic finance products are understood by a handful of people, taking a dispute to court rarely helps the judicial system come up with a solution. With this in mind and coupled with a team of qualified mediators, Sulh Consultancy mediates between disputing parties and comes up with an amicable solution. “We are the only institution in Kenya focusing on mediation and arbitration in Islamic finance,” offers Abdi.
The consultancy firm also offers contract analysis. This entails real-time review and analysis of a contract on behalf of a client and providing opinion on the same. Sulh Consultancy also guides the client on the right thing to do and how to do it.
Furthermore, Sulh Consultancy provides Islamic Wealth Management. It particularly focuses on the aspect of wealth endowment (Waqf) where it does trust endowment in line with Islamic principles. It is a voluntary and irrevocable dedication of wealth, be it in cash or kind for specific charitable causes that are socially beneficial.
Another service offered by Sulh Consultancy is Zakat. It is a form of Islamic tax that requires all Muslims to donate a portion of their wealth to charity. Every Muslim is supposed to pay 2.5 percent of their wealth every year. However, they must meet a certain threshold before they can qualify for zakat.
“We also offer product development for Islamic institutions and for convectional financial institutions who are interested in Islamic financial services. We walk with them for the first two years until they are able to understand and manage the business on their own.”
Why Islamic Finance?
Islamic finance is based on ethical principles. This not only restores confidence, but also brings financial institutions closer to their clients. The ethical based financial arrangement ensures that clients are not exploited. According to Abdi, charging micro and small businesses high interest rates does not help them grow, but only burdens them. That is why, in Islamic finance, there is the concept of partnership between the financer and the client.
The Islamic Financial industry also tries to create a balance in the community. The financial institutions work as intermediaries to help the economy grow. They remove the burden of compounded interest from people by giving them money to do business, as well as becoming partners. For instance, if you want to buy a car, and the price of the car is more than what you have, the bank buys the car and sells it to you at cost plus mark-up.
There is also the concept of Islamic commercial law that dictates transactions. In accordance with Islamic law, Islamic financial products are based on specific types of contracts. Shari’ah-compliant contracts cannot create debt, cannot involve the payment of interest, and must provide for a sharing of risk and responsibility between the involved parties.
Contribution to the Financial Sector
Sulh Consultancy is playing a major role in aiding the financial sector understand and implement Shari’ah compliant products. In addition to conducting in-house training to individuals interested in understanding Islamic finance, the consultancy firm also partners with institutions to train their staff.
The Consultancy firm is also taking advantage of the digital era. Owing to the fact that a large percentage of Kenyans now own smartphones and are able to access the internet, Sulh Consultancy conducts education sessions through twitter spaces to reach more people.
Recent Innovations and Trends in Islamic Finance
One of the major innovations in Islamic finance is the adoption of smart contract technology. Smart contracts can be used in Islamic finance to improve business processes, streamline operations, and ensure compliance with Shariah law. While the classical Islamic commercial law necessitated the contracting parties to sit together and undertake transactions, smart contracts eliminate this trend and allow people to sign through their mobile phones. Abdi offers that some Islamic financial institutions outside Africa have adopted the smart contract technology. They include countries in South East Asia such as Indonesia, Malaysia and Singapore, as well as some Middle East countries.
Another innovation is the application of artificial intelligence (AI) in Islamic finance. The use of robots has eliminated the need of Sharia Boards that are a prerequisite for every Islamic financial institution. Scholars and Sharia boards play a crucial role in ensuring that financial products and transactions comply with Islamic principles. A Sharia Board certifies Islamic financial products as being Halal/Shariah-compliant. “In the Middle East, Sharia Boards have been replaced by robots and the move has cut down on manpower.” The robot is encrypted with information about Islamic finance and Islamic commercial laws, rules and principles. It is then given the contract, analyses it and gives a verdict. It is the AI of compliant. However, this is still in trial period. The CEO hopes the innovation will reach in Africa someday.
Opportunities for Islamic Finance
The biggest opportunity in Islamic finance is the concept of Islamic bond (Sukuk). A sukuk is a sharia-compliant bond-like instruments used in Islamic finance. It is currently booming in the world and most of the Western and Asian Countries have adopted it. In Kenya, the Capital Markets Authority (CMA) is working hard to initiate the first sukuk. A sukuk generates income to the investor without infringing Islamic law and at the same time develops the country.
Challenges
According to Abdi, limited public awareness and lack of knowledge in the sharia-compliance of Islamic financial products are part of the key challenges the industry faces. “In terms of education, training for Islamic finance is negligible in Kenya. It accounts for about 0.5 percent.”
Due to lack of knowledge, the Islamic financial industry lacks enough manpower. These are people who understand Islamic products and services. However, Abdi notes that some people are developing themselves through training in the country while others are seeking certifications in countries such as Malaysia.
There is also the issue of misconception and misunderstanding by the general public that Islamic finance is only for Muslims. This is a fallacy that needs to be debunked.
To enhance understanding, education and awareness initiatives about Islamic finance are essential. Academic institutions should offer more courses and programs, while experts should hold seminars and conferences to provide individuals with a better understanding of the principles and practices of Islamic finance.
Furthermore, mainstream media and financial education programs can play a role in demystifying Islamic finance for a wider audience.
