njuguna ndung ’ u : essential groundwork for competing effectively in the islamic banking environment remarks by prof njuguna ndung ’ u, governor of the central bank of kenya, at the launch of the regional certificate in participatory / islamic banking, kenya school of monetary studies, nairobi, 25 february 2014. * * * distinguished guests ; ladies and gentlemen : 1. it gives me great pleasure to be here today to officially welcome all of you to the launch of the regional certificate in participatory / islamic banking programme conducted by the kenya school of monetary studies in collaboration with the international center for education in islamic finance ( inceif ). inceif is the only educational institution in the world devoted to islamic finance. on behalf of the central bank of kenya, let me extend a very warm welcome to all the organizations represented here today. 2. the school has established a collaborative partnership with inceif to offer the exclusive certificate targeting members of staff at executive level in bank and non bank financial institutions offering lending services. in this collaborative arrangement, ksms is leveraging the expertise inceif has developed over the years in delivering a globally recognized certificate in islamic banking. further, it is important to note that the launch of the inceif program we are having here today is a culmination of concerted efforts by kenya school of monetary studies in developing solutions to problems faced by the region that are practical and relevant. 3. ladies and gentlemen : this program is designed to develop human capital in participatory / islamic banking in the comesa region. it is structured to provide an introduction of basic islamic principles governing financial transactions in order to establish a good foundation for the understanding of key operations in participatory / islamic banking. the program will change the islamic finance training landscape and enhance financial inclusion since the focus is definitely now on africa and particularly sub - saharan africa where consumer awareness of non interest banking or participatory / islamic banking is growing and the demand for this across bank customers. 4. as kenya and the region at large becomes an increasingly attractive destination for investments, the onus is on you, the financial industry players and financial institutions to tap into this tremendous potential in the area of islamic banking. as you know, with growth comes opportunities ; with opportunities, demand for engaging qualified personnel and developing training capacity for the drivers of the industry in technical and operational areas of handling and managing participatory / islamic banking based products for

cbk to recognize the payment of a return rather than interest on government securities with the aim of opening up a spectrum of shariah compliant investment in the country. similarly, section 16 of the banking act was amended to allow for payment of a return rather than interest on savings products in the banking industry. i therefore urge all the players in this sector to come up with innovative products and services so that kenya may achieve her ambition of becoming a financial hub in the region. the central bank of kenya will work with all the players in facilitating the achievement of this dream. ladies and gentlemen : sharia compliant banking, although still in its infancy in our country, has a lot of opportunity for growth. the two fully sharia compliant banks as at the end of february 2013 had a total of kshs. 15. 4 billion in loans and advances and kshs. 19. 5 billion in total deposits. furthermore, these two banks together with other conventional banks offering sharia compliant banking window had total deposits of sha. 27. 8 billion as at bis central bankers ’ speeches 31st december 2012. these numbers just show how sharia compliant banking is gradually becoming a major player in the banking sector. ladies and gentlemen : the introduction of these specialized products in the kenyan banking industry no doubt comes with its challenges. these include limited short term liquidity management products, lack of experienced human resources in this specialized banking & finance area, lack of product standardization which can be a cause of ambiguity and source of disputes to mention but a few. the central bank is currently formulating policy and regulations to regulate the sharia compliant products and therefore depart from the current practice of subjecting sharia compliant banking to conventional banking regulations. i urge all the shariah boards to work together to help find solutions or come up with suggestions on how to address these challenges. we at the central bank will be willing and happy to provide the necessary facilitation and share our views. ladies and gentlemen : the future of sharia compliant banking and finance in kenya is bright but the challenges that exist need to be tackled collectively. i urge all players in the sharia compliant banking to embrace the spirit of cooperation and competition as they come up with ways of product and service standardization. kenya has pioneered in sharia compliant banking in this region but other countries in the region are headed in that direction, with tanzania already having two fully sharia compliant banks. somalia is another country keen on modeling its emerging financial system predominantly along sharia compliance as it rec