Russia leads CIS towards Islamic banking and finance

While considerably new, Islamic Banking and Finance has now taken firm roots in Russia and other Commonwealth Independent States (CIS) countries are following suit.

The total volume of Islamic Banking and Finance has now exceeded $2.6 trillion globally. This amount represents transactions, assets and investments by over 2,500 Islamic banking and financial institutions around the global.

In the modern era, Islamic banking and finance can be traced back to the 1960s from Egypt and Malaysia and its dramatic spread over the Middle East, Africa and Europe. Interestingly, while Islamic banking and finance was slow to take foot in Commonwealth Independent States (CIS) countries, its unprecedented growth over the last few years indicates that CIS countries are the emerging Islamic banking and finance market for the future.

Some well known CIS countries include Russia, Armenia, Kazakhstan, Uzbekistan, Tajikistan, Kyrgyzstan, Turkmenistan and Azerbaijan.

“The delay for Islamic finance initiative in CIS countries may count in many folds, it would be due to Russian influence in CIS countries,” suggests the Islamic Banking guru Mr. Muhammad Zubair Mughal who is the Global CEO of AlHuda Center of Islamic Banking and Economics.

According to the seasoned banker, the mind set of Russian block and limited relations with International Banking and Financial Markets hampered development of Islamic Banking and Finance in CIS.

However, owing to what he described as ‘unstable Russian relationship with Europe’ and the sharp decline of oil prices has now compelled Russia to seek better financial alternatives, Islamic banking and finance.

Effectively, Russia has gone ahead and instituted friendly Islamic Banking policies and as a result geared-up Islamic banking and finance industry in CIS countries. This opens doors for enormous investment opportunities given that the Muslim population of CIS countries is estimated to be 75 million not to mention the non-muslim bankers that, like Russia, will opt for better banking options.

Russia also has a significant Muslim population and is with the recent government led initiative to support Islamic Finance it is expected that various Islamic banking and finance products will take root like Sukuk and Takaful.

Promoting Islamic Banking in CIS

AlHuda Centre of Islamic Banking and Economics (CIBE), a pioneer organization started its efforts to promote Islamic Banking and Finance is holding an Islamic banking and finance conference in Tashkent, Uzbekistan on 2nd May 2019.

The CIS Islamic Banking and Finance Forum will gather the CIS Islamic finance industry specialists and stakeholders on a single platform to promote Islamic banking and finance in the region.

In CIS countries, the Islamic banking and finance market can be divided into three parts. At first, there are countries such as Kazakhstan, Uzbekistan, Kyrgyzstan and Azerbaijan where the pace of Islamic banking and finance can be described as is satisfactory and where it is promoted and considered the sustainable financial alternative.

Secondly, there is the second group of countries, the likes of Tajikistan, Turkmenistan and Russia where the growth rate of Islamic banking and finance is rather slow. And the third group consists of countries in which there is no initiative taken so far, these are like Armenia, Ukraine and Belarus.

Kazakhstan leads the CIS in the growth of Islamic banking and finance. Started only in 1992, Islamic financing has grown drastically. More so, the growth can be noted following the global financial crises that started in 2008.

In Kazakhstan there is also considerable appropriate support of government institutions. Currently it has one full-fledged Islamic bank and 4 Islamic banking windows. They offer Takaful, Islamic leasing (Ijarah) and Islamic micro-financial institutions among other Islamic banking and Finance products.

Kazakhstan also launched an Islamic Agricultural Finance product with the financial assistance of the Islamic Development Bank. Further still, the recent establishment of the Astana International Financial Center (AIFC) places Kazakhstan as the regional center for Islamic Banking.

Azerbaijan comes after Kazakhstan but with much less government involvement. There is also no full-fledged Islamic bank in the country but there are at least 4 Islamic banking windows operating with limited Islamic Banking Regulations.

Uzbekistan follows and credit can be given directly to its new president H.E. Shavkat Mirziyoyev who has spearheaded the growth of Islamic Banking. Three Islamic banking windows are currently operational and accept deposits on Shariah bases.

Few Islamic leasing companies also offer Ijarah services, but it is predicted that after proper Islamic Banking and Finance regulations, Uzbekistan can supersede other CIS countries.

Neighbouring Kyrgyzstan also takes precedence its parliament passing the Islamic banking law in 2011 making it the only country in CIS to do so. In fact, there is at least one conventional bank that is in the process of becoming a full-fledged Islamic bank.

The most important factor of the growth of Islamic banking and finance industry in CIS countries is the Islamic Development Bank’s support.


How mergers are shaping up Kenya’s banking industry

Majority of the deals are tier 1 banks going for struggling tier 2 and 3 lenders

Kenya’s banking sector is on an evolution path evidenced by the high number of mergers and acquisitions being witnessed; a trend the government is hoping will realign and strengthen the sector.

The most recent is last week’s offer by the country’s largest bank by asset-KCB, which has made a move to acquire a hundred per cent (100%) of the ordinary shares in National Bank of Kenya (NBK).

This is the sixth deal in the last nine months (between August 2018 and April this year) with a total 13 banking merger and acquisitions in the last six years.

Majority of the deals are tier 1 lenders going for smaller struggling banks in tier 2 and tier 3, in the market which has a total of 42 commercial banks and one mortgage finance institution-Housing Finance.

KCB, which is tier 1, is seeking to acquire NBK which is a tier 2 lender, both listed on the Nairobi Security Exchange (NSE).

In the deal which has a book value of Ksh6.6 billion (USD65.1 million), KCB offer will be by way of a share swap at a ratio of 10:1, 10 ordinary shares of NBK for one ordinary share of KCB, whose shares are currently trading at Ksh4.7 and Ksh45.0, respectively as at April 18.

Thus using the share swap ratio of 10:1, NBK’s 1.47 billion ordinary shares will be swapped for 147.3 million KCB shares.KCB will thus have to issue an additional 147.3 million ordinary shares to complete the share swap.

This will increase KCB’s total shares outstanding to 3.21 billion shares from the current 3.06 billion shares, and current shareholders will be diluted by 4.6 per cent.

“The acquisition of the Offer Shares by the Offeror is also stated to be subject to several conditions, including the Company delisting from the Nairobi Securities Exchange upon acceptance of the Offer, the conversion of the 1,135,000,000 preference shares in the capital of the Company to 1,135,000,000 new ordinary shares and procurement of regulatory approvals from, amongst others, the Capital Markets Authority, the Central Bank of Kenya, and the Competition Authority of Kenya,” NBK said in a public statement.

The deal comes barely four months after Commercial Bank of Africa (CBA) and NIC Group announced a merger plan, on December 6, 2018.

Last week, the shareholders of CBA approved the proposed merger and further approved and ratified the merger agreement and other key transactions documents between the merging entities.

READ: Kenya’s wealthiest families shake the local banking industry

“Following the shareholders’ approval and subject to applicable law, various conditions precedent set out in the mergers agreement as well as obtaining the necessary regulatory approvals, the boards of directors of the merging entities will now proceed with the consummation of the proposed merger through the preparation and execution of other ancillary or administrative agreements and documents which will be required to implement the proposed merger,” CBA management announced.

Industry players are now projecting more mergers and acquisitions as stronger banks court struggling lenders on the lower end, which are struggling to remain afloat in the wake of increased competition in the market.

This is in the wake of a tough business environment in the country where banks are struggling to navigate the capping of interest rates which came into place in 2016, a regulation that has denied banks the huge profits previously earned from their loan books.

The law caps interest rates chargeable by banks (on loans) at four percentage points above the Central Bank of Kenya (CBK) which is currently at nine per cent (9%). Previously, banks could charge as high as 42 per cent on a loan facility.

The mergers are not a surprise, according to investment firm Cytonn.

“The transaction (KCB-NBK) is in line with our expectation of increased consolidation in the banking sector as players with depleted capital positions become acquired by their larger counterparts or merge together to form well-capitalized entities capable of navigating the relatively tough operating environment induced by price controls on lending rates, and exacerbated by the stiff competition,” Cytonn says in its weekly review.

According to Cytonn Investment Senior Manager Johnson Denge, Kenya’s banking sector consolidation will continue to happen and it will lead to a more stable, safer banking sector.

“Smaller banks constrained in capital, and struggling in their operations are likely to continue receiving take-over offers, which would present the best case scenario to navigate the current competitive banking sector landscape,” Denge notes.

The investment firm notes that transactions are happening at “significantly cheaper valuations”, perhaps due to the smaller banks’ relatively poor performance, leading to liquidity constraints, which may warrant even further capital injections, hence the cheaper acquisition costs.

Recent major deals, apart from the KCB-NBK and CBA-NIC, include the acquisition of Jamii Bora by CBA Group in a transaction valued at Ksh1.4 billion(USD13.8 million). The 100 per cent acquisition was announced in January.

In the same month, AfricInvest Azure made a move on Prime Bank seeking a 24.2 per cent stake in a deal valued at Ksh5.1 billion (USD50.3million).

In December last year, KCB made an advance on under receivership Imperial Bank in an undisclosed deal. In August, SBM Bank made a move to secure 75 per cent of Chase Bank(undisclosed).

Others were Diamond Trust Bank’s move on Habib Bank where is took 100 per cent control in a Ksh1.8 billion (USD17.8 million) deal in March 2017.

This was after SBM Holding acquired Fidelity Commercial bank the previous year in a Ksh2.8 billion (USD27.6 million).

In the same year, M Bank had acquired a 51 per cent stake in Oriental Commercial Bank at Ksh1.3 billion (USD12.8 million) while I&M acquired Giro Bank at Ksh5 billion(USD49.3 million).

Other previous deals are the acquisition of a 75 per cent stake in Equatorial Commercial Bank by Mwalimu Sacco in 2015 at Ksh2.6 billion(USD25.6million).

In 2014, Centum acquired a 66 per cent stake in K Rep Bank at Ksh2.5 billion(USD24.7 million) while  GT Bank acquired 70 per cent of Fina Bank Group in 2013 at Ksh8.6 billion (USD84.8 million).

CBK governor Patrick Njoroge has been calling on straggling banks to merge to form stronger lending institution which will go a long way in supporting growth in the country, mainly funding of mega projects where the government is forced to borrow heavily from external markets.

ALSO READ: Banks in Kenya realigning for the 3rd evolution to take on Africa

Towards achieving a financially equitable society

Tanzania endeavors to become a middle-income economy by 2025 with a desired per capita income of USD 3000; this will be a monumental step towards economic development and growth for the country.

These aspirations can only be achieved by investing in human capital, in particular creating equal opportunities for women and men. Human capital is the driver of economic transformation and according to the National Bureau of Statistics (NBS) the population currently stands at 54 million and is projected to reach 67 million by 2025. Currently, women comprise 51.3 percent of the population, and while they play a key role in household resilience and sustaining livelihoods within Tanzania’s current economy, they face considerable challenges in other areas. For Tanzania to realize its development ambitions to attain middle-income status, these obstacles need to be addressed in order to create a level playing field that empowers women to be involved in the economy at the same rate as men.

Poverty rates are higher for female-headed households, especially in the rural areas -according to the Ministry of Health, 60 percent of Tanzanian women live in absolute poverty. Women struggle to access vital resources, such as educational opportunities, credit and financial services on a daily basis, hindering their chances for income stability and economic opportunities. While these challenges are not unique to women they are a particularly disadvantaged group.

Additionally, when it comes to accessing financial services, women are underserved. A 2018 report by FinScope notes that only 60% of women in Tanzania have access to financial services compared to 70% of men – while 30 percent are completely excluded from financial services due to qualifying criteria. Sadly, women are trailing behind men in the efforts to advance financial inclusion in Tanzania.

Mama Ntilie’s are a common feature of the urban landscape and when it comes to the business arena, women surpass men as founders of micro, small and medium enterprises (MSMEs) accounting for 54 percent of all MSMEs in Tanzania. As such, women should warrant more attention; they can catalyze the economy into Tanzania’s desired middle-income status by 2025.

Stanbic Bank Tanzania has joined forces with the United Nations (UN) Women HeForShe movement, which invites men and women to stand in solidarity for gender equality. We encourage all genders to partake as agents of change and act against negative stereotypes and behaviors.

It is imperative that financial services provide not only credit options but also equip women with information and direction to succeed in the market. Products and services need to be tailored to support their business and personal financial activities, provide convenience to carry out daily transactions such as transferring funds, paying bills and monitoring the activities on their accounts while allowing them to focus on running and scaling up their businesses. Stanbic Bank’s UHURU Banking is one such solution. It is a simple, easy, transparent and accessible way of banking that can contribute to balancing the scale between the genders by also providing women the right advice and support for their financial growth.

In Tanzania’s social framework, the function of women in bolstering a household cannot be overstated; they carry a large financial load when it comes to sustaining their households. Women are the doorway towards improving standards of living within homes in a qualitative and quantitative manner. In order to empower women and carve out a level playing field, they must have the tools to participate in economic and social activities as equal citizens, which requires access to opportunities, information and capabilities. Once this becomes a reality their input will lead to a significant improvement in the livelihoods of the population, creation of jobs and household resilience. The spirit of Tanzanian women will have transformative powers on the nation.

By Ruth Mwaiselage. Title: Head, Personal Banking

Also Read: Is Tanzania’s banking sector caving in?

Fintech drives Equity Bank’s diaspora remittances to Ksh100Bn

Diaspora transaction volumes rose to Ksh107 billion in 2018

Equity Bank’s Fintech innovation and digitization has powered rapid growth of Diaspora banking boosting the total revenue income by 38 per cent.

Diaspora transaction volumes grew by 196 per cent to Ksh107 billion (US$1.06 billion) while the commissions recorded a 169 per cent rise from Ksh279 million (US$2.76 million) in 2017 to Ksh751 million (US$7.43 million) after the same period last year.

The results came in the backdrop of a unique business model and strategy that creates resilience while managing headwinds of interest rate capping and challenging macroeconomic and business environment.

Speaking during the release of the 2018 full year results, Equity Group CEO & MD Dr. James Mwangi noted that, remittances have taken a significant market share moving from Ksh36 billion(US$356.1 million) to Ksh107 billion(US$1.06 billion) and hopefully this year surpassing Ksh200 billion (US$1.98 billion) in diaspora remittances processing simply because of Fintech capabilities.

A model that differentiates Equity Bank’s from others in the market, as it delivers unmatched convenience and ease that no other bank has, the Nairobi Securities Exchange (NSE) listed lender notes.

Equity has continued to invest in solutions through innovations and strategic partnerships with global money remittance outlets targeting Kenyans living and working abroad.

The Diaspora business segment offer a wide range of services tailored to suit the banking needs for money transfers, payments and investments.

According to CBK data, total cash inflows from foreign countries increased by 39 percent to Sh274.37 billion (US$2.71 billion) in relation to Sh198.07 billion (US$1.96 billion) in 2017.

June recorded the highest diaspora remittances with US leading followed by Europe and the rest of the world inflow earnings.

In 2018, Equity Group profits grew to Ksh28.5 billion (US$281.9 million), a profit growth of six per cent and a 13 per cent growth in customer deposit.

READ:Equity net profit grows to Ksh19.8 billion on FinTech

Customer base grew to 13.5 million clients and customer deposits grew at 13 per cent to reach Ksh422.8 billion (US$4.18 billion) up from Ksh373.1 billion (US$3.7 billion) driving the growth of the balance sheet to reach Ksh573.4 billion (US$5.7 billion) up from Ksh524.5 billion (US$5.2 billion the previous year.



Digital payments to drive African economies

Digital payments in Africa are yet to be fully tapped, according to iPay MD.

The MD Mr Philip Nyamwaya, speaking at the launch of an affiliates program to unlock Africa’s Digital Payments markets said that Kenya is leading the way in Africa’s dash from cash, although on many fronts, cash is unfortunately still king.

“Cash is still king in Africa and the digital payments market is yet to be fully tapped,” he said adding that as an economy, the country has made great strides in the recent past, however E-commerce is still in its early days.

“Compared to other markets, Kenya is leading the way in Africa’s dash from cash, although on many fronts, cash is unfortunately still king,” he noted.

There are about 45 million mobile money accounts in Kenya with deals worth Sh3.9 trillion ($38.73 billion) settled by mobile phones this year according to latest data from the Communications Authority of Kenya.

Nyamwaya was speaking during the launch of the iPay affiliates programme where the firm is targeting web developers, merchants and digital marketers with clients who are selling online or in-store.

According to the Oxford Business Group, the popularity of mobile money in Kenya has continued to expand against traditional payment methods. However, the fragmentation of the digital transaction market could see cash remain the preferred option for many people.

Growth in mobile payments reached 8% in 2018, and totaled KSh3.6trn ($36bn) in value, according to data released by Central Bank of Kenya (CBK).

The study also noted that while steady, the pace of expansion was slower than in 2016 and 2015, when growth rates of 19% and 17% were recorded, respectively. Muted consumer spending as a result of a combination of factors, including lower-than-expected economic growth, contributed to the slower pace of growth, according to industry stakeholders cited in local press reports.

Despite the more subdued performance last year, the overall trend for the segment over the past decade has been robust; the value of mobile money transactions has jumped more than 20-fold, from just KSh166.6bn ($1.7bn) in 2008, the first full year the CBK recorded statistics for the segment.

A key driver of growth has been the M-Pesa mobile money system, which was launched by local telecoms operator Safaricom in 2007 and allows users to send money, pay bills and apply for loans through their mobile phones.

M-Pesa controls 81% of the mobile money market and had 22.6 million subscribers as of June 2017. It has also been cited as the key factor behind the rapid increase in Kenya’s financial inclusion, which has risen from 26.7% in 2006 to 75.3% in 2016.

Kenya also has the highest rate of mobile money penetration in East Africa – at 59% – and the 10th highest in sub-Saharan Africa, according to GSMA Intelligence.

Despite the growth in mobile money payments and the increasing number of banking options, the use of cash remains key for many Kenyans.

According to the 2016 FinAccess survey, released by the CBK, 94.6% of business owners still used cash as their main mode of payment, with similarly high levels among casual (94.7%) and agricultural workers (92.8%). Conversely, only 43.3% of regular employees were paid in cash, with 47.2% receiving their wages electronically.

“Furthermore, highlighting the important role that cash plays in the economy, Willie Kimani, CEO of supermarket chain Naivas, told a digital payments industry event in March this year that cash still accounted for more than 60% of the company’s transactions, followed by card (17%) and M-Pesa (16%).” a statement by Oxford Business Group noted.

Digital payments in Kenya

Some industry figures have cited the complexity and fragmentation of Kenya’s digital payments system as a factor facilitating the dominance of cash.

The program that has now been launched by the iPay will see website designers, digital agencies, who refer merchants to use iPay as the payment gateway share 5 percent to 10 percent revenue with them for the lifetime of that merchant.

“The merchant can be online or have a physical store preseence, this will be an added value to the web designers eCommerce product offering, even as we grow our transactions base,” Mr Nyamwaya said.

CBK governor Mr Patrick Njoroge says that innovations in mobile phone financial services have allowed for a 75.3% financial inclusion, one of the highest in Africa.

“Innovation will likely come from the intersection of ICT and financial services as it has in the past, but we need to take this beyond simple transfers. Kenya is about to introduce the M-Akiba mobile bond in which a rural Kenyan can participate for $30. Savings vehicles like this could be transformative for low-income populations,” he said adding that there are many platforms and incubators which could also bear fruit in innovative forms.

“It is also important we have innovators that help us move away from standard lending models and products to accommodate income volatility challenges among the lower income segment. This type of innovation is essential for SME growth and can be done,” Mr Njoroge said.

iPay is a payment Gateway that allows you or your merchants to receive payment, send payments or pay bills conveniently. iPay is able to process payments from Mobile Money (MPESA, Airtel Money, Equitel) Mobile Banking (Pesalink), the eLipa eWallet, local bank debit cards, Visa and Mastercard credit cards as well.
The firm has been in opertion in Kenya since 2010 and are also active Uganda, Tanzania Togo with Rwanda going live soon.

Also read: Standard Chartered to lead digital-only retail banking across Africa



How to earn through online forex trading

Nairobi School of Forex Trading – a local Forex training institute, last year November held its first Forex trading conference in Nairobi.

The forum which was graced by online forex traders and financial institutions was described as a key indicator that online Forex trading is taking shape among Kenyans.

Online Forex Trading can be defined as speculation of currencies whereby a person trades on one currency against the other with the anticipation of making profits. One makes profits by buying a currency that gains value in a buy trade and selling a currency that its price drops in a sell trade. Losses occur when the opposite happens.

According to Silah Obegi – An automated Forex trading expert and also Director at Nairobi School of Forex, Online Forex Trading can act as an investment vehicle for creating secondary income for most individuals at the same time it can be a main source of income for those who take it seriously as a full time job.

“Forex can be compared to the stock/share market and you may equate a currency for a country to a stock for a company, political situation of a country to corporate governance of a company and economic data of a country to financial statements for a company. Using this comparison, the approach to trading Forex is partially the same as shares trading hence a Forex trader can easily become a stock trader and vice versa” says Silah.

Mr Silah opines that there are different approaches to trading the Forex Market that one needs to follow, they include:

Technical Analysis

This is the most favored approach for most traders, it involves analyzing the past and recent currency price trend behavior to predict where the price may move going forward. This trading approach encompasses various individual trading methods to detect trading opportunities.

 Fundamental Analysis

This kind of approach involves analyzing currency inflows and outflows of a country usually influenced by the Central Bank’s currency decisions, geo-political situation and economical news and data. When a country has solid monetary policies, stable political situation and positive economic news then its currency is likely to gain value. The opposite is also true.

Automated Trading

This is also referred as Algorithmic Trading. This involves writing your trading ideas to a computer program called an algorithm used to partially or fully make trading decisions on your behalf. A trader would usually rent a cloud server with a hosting service provider, activate the automated trading systems and let them trade on your behalf. When these systems spot a trading setup, they execute a buy or sell trade and manage the trade according to the set rules until it closes with minimum to no human intervention.

Online Forex Trading is regulated by the Capital Markets Authority under Capital Markets (Online Foreign Exchange Trading) Regulations, 2017. The regulation clearly stipulates the requirements for conducting the Online Forex Trading business in Kenya covering Forex Brokers, Money Managers and Introducing Brokers. Under the regulation Forex Brokers are required to maintain a minimum paid up capital of between Ksh 30 million and Ksh 50 million while Money Managers are required to maintain a minimum paid up capital of Ksh 10 million among other requirements.

Before embarking on Forex Trading, one needs a firm grasp of the Forex markets, understand how to do analysis using various approaches and make profitable trading decisions.

The Nairobi School of Forex Trading offers value-add services for Online Forex Trading in Kenya including a comprehensive course for both retail and institutional clients. The Forex Trading Course equips beginners with adequate tools and skills necessary to trade in a profitable, consistent and sustainable manner. The directors have a combined experience of over 20 years and they have trained over 100 students in their offices and over 1000 through seminars and hackathons in Nairobi.

The training program takes 2 months available in morning, afternoon and evening classes, 2 hours per session, 3 days a week. Topics covered include introduction to Forex Trading, local and global Forex regulation, selecting a broker that meets your trading needs, navigating the trading platforms, various trading analysis (technical, fundamental and sentimental), automated trading, money management, risk management and formulating a trading plan among other topics.

Mr Silah says that “By the time our students complete the course, they already have a full understanding of the Forex markets and know how to make informed and profitable trading decisions. We have also developed over 25 automated trading tools to complement manual trading by our students.”

He adds that during the training period, students learn and practice on demo accounts which allows them to have a feel of the real markets with virtual money. However, there is usually a huge gap when transitioning from demo trading to live trading due to the emotional attachment associated with real money. To bridge this gap, the school has introduced learning and practicing on KSh 50,000 ($500) live accounts powered by Meta Capital Limited and EGM Securities. The practice live accounts are opened with EGM Securities under Meta Capital and the students are given login details to the accounts to practice with. The students keep 50% of all the profits they make during the training period, giving them the motivation to make careful trading decisions. In-case of losses, Meta Capital absorbs the losses and replenishes the trading accounts for the subsequent students. “This will ensure that our training program becomes as effective as possible and our students know how to trade with real money by the end of the course” added Mr Silah

Mr Silah comments that “At the moment we have 2 training centers located in CBD and Westland’s with monthly intakes for morning, afternoon and evening classes. We are determined to ensure that we equip our students with the most outstanding skills and tools necessary to master Online Forex Trading. We are also keen on strategic partnerships with the industry stakeholders that will ensure we remain the most established and trusted Forex Trading Academy in the region” concludes Mr Silah.

Also Read:The Tanzanian forex business under scrutiny