Kenya eyes share of Sh780 trillion Shariah-compliant finance market

Kenya eyes share of Sh780 trillion Shariah-compliant finance market.[Courtesy]

Kenya's financial sector is targeting a slice of the rapidly growing $6 trillion (Sh780 trillion) global Islamic finance market, with policymakers and industry leaders calling for legal reforms to unlock the sector's untapped potential locally.

The country’s financial sector leaders noted the need to review the existing legal framework to attract greater capital inflows and deepen Shariah-compliant products.

They noted that despite the issuance of the landmark Sh3 billion Linzi Sukuk in 2023 and an expanding cooperative movement, Islamic banking currently accounts for just two per cent of Kenya’s Sh8 trillion banking industry, presenting a huge growth opportunity for financially inclusive and asset-backed economic development.

Kenya Revenue Authority (KRA) Chair Ndiritu Muriithi called for improvements in Kenya’s legal framework governing Islamic finance, saying the changes could help unlock a market that remains small despite growing global demand for Shariah-compliant financial products.

Muriithi said existing laws already recognise instruments such as sukuk, but suggested there was room to improve the framework as Kenya seeks to attract more capital into the sector.

“Our law today recognises sukuk as a form of national government security and defines Sukuk certificates as those representing undivided shares, assets, services, and investments,” he said, adding, “But, I do think that there is scope for improvement.”

He was speaking at the Islamic Finance Forum in Nairobi, themed “Igniting Growth in Shariah Compliant Finance”, where financial sector players and business representatives discussed the development of Islamic finance in Kenya.

Shariah refers to Islamic rules and principles that guide how Muslims conduct their lives, including how they handle money and do not allow interest.

Sukuk allows investors to earn returns linked to an underlying asset or project rather than conventional interest. Muriithi’s call comes in a market where Kenya has issued only one sukuk, even as Islamic finance has expanded rapidly globally.

The Linzi Sukuk, approved by the Capital Markets Authority in September 2023, was a Sh3 billion Islamic secured residential lease-based security with a 15-year maturity period.

The proceeds were intended for the design, construction, and commissioning of 3,069 institutional housing units. The sukuk has an internal rate of return of 11.13 per cent.

Linzi Sukuk was the first Shariah-compliant security admitted to the Nairobi Securities Exchange’s Unquoted Securities Platform.

Kenya’s legal framework for such products was strengthened through the Finance Act of 2017, which amended the Income Tax Act, VAT Act, Stamp Duty Act, Public Finance Management Act, Co-operative Societies Act and Sacco Societies Act to provide for the taxation and treatment of Islamic financial products.

Muriithi’s comments suggest that having provisions in law has not necessarily translated into a deep market for the products.

He pointed to the Movable Property Security Rights Act as an example of how existing financial infrastructure could be used to develop Shariah-compliant financing. “Not so long ago, the Movable Property Security Rights Act was enacted, and its purpose was to create a registry that links traditional finance with more conventional finance,” he said.

The law provides a framework for registering interests in movable assets used as security for financing.

Muriithi said this could also create room for financing structures based on an investor’s interest in an underlying asset.

“When people take loans, and livestock is the security, then along with the assets, including vehicles and so on, there is a register where the interests in those assets are recorded. This gives us a strong opportunity for improvement. If I have provided finance for you to buy a truck, it could be structured so that it is my interest in that truck, and therefore, as a financier, what I’m participating in is the return on that asset.”

The reference to livestock is significant for an economy where many businesses and households, especially in pastoral communities, hold wealth in assets that do not always fit neatly into conventional lending models.

Gamaliel Hassan, chief executive of Stima DT Sacco, said the cooperatives movement already has the financial reach that could support greater uptake.

“Kenya’s Sacco sector is the largest in Africa and the third largest globally,” he said. “As of last June, we controlled over Sh1.2 trillion in total assets. We have issued hundreds of billions of shillings in member deposits and loans on the conventional side. But when you look at the Sharia-compliant element, it is a small fraction of that portfolio. That is the exact opportunity before us.”

Saccos could potentially provide a distribution network for Islamic financial products owing to their established relationships with traders, teachers, and other members who may have limited access to alternative forms of financing.

“Saccos reach the exact populations that require Islamic financial products,” Hassan said. “These are the financially excluded who remained outside formal financial platforms due to faith or lack of access. In my opinion, the Islamic finance model was built for the Sacco sector and its members.”

But the potential market extends beyond financing itself into the broader halal economy.

Jabril Ibrahim Abdulle, Somalia’s ambassador to Kenya, cited Thailand as an example of a country that has developed a sizeable halal industry despite Muslims making up only about five per cent of its population.

“A few years back I was in Thailand, which has about five Muslims,” he said. “But despite Muslim representing a minority of the population, Thailand has developed significant expertise in halal recognition, and has positioned itself as an important exporter of halal agriculture for ethical practice.”

Currently, Thailand has more than 200,000 halal-certified products registered with the Central Islamic Council of Thailand, while its halal food exports to Organisation of Islamic Cooperation countries reached close to $4.9 billion  (Sh600 billion) in the first 10 months of 2025, according to figures cited during the discussion.

This, he said, shows that the size of a Muslim population is not necessarily the only factor determining the development of a halal economy, but investment in technology as well as the markets.

Closer to home, it is difficult to mention the Islamic business players without including Eastleigh, a commercial centre in Kamukunji Constituency. It is one of Nairobi’s major business spots, courting capital from the Gulf, China and Turkey due to the vast retail business in the area.

Its businesses, numbering close to 20,000 under the Eastleigh Business District Association, drive the district’s outsized contribution to Nairobi’s revenue.

The association’s chairman, Ahmed Abdullahi Yare, said it is time for local businesses to consider how Islamic financial principles are applied in commercial activity to be market-ready.

“As part of our corporate social responsibility, we should be willing to sacrifice some financial returns so that we can enforce and implement Islamic financial ethics in our community,” he said.

The scale of Eastleigh’s commercial activity, however, contrasts sharply with the relatively limited development of formal Shariah-compliant financing in Kenya.

Globally, Islamic finance assets reached $5.2 trillion (Sh676 billion) in 2025 and are forecast to exceed $6 trillion by the end of 2026, while sukuk issuance has surpassed $230 billion.

Kenya, alongside Tanzania and Zambia, is still at an early stage of participating in a market largely dominated by the Gulf and Asia.

Placed against Kenya’s roughly Sh8 trillion banking sector, Islamic finance still occupies a small corner of the market, estimated at two per cent of banking business despite growing at close to 20 per cent a year, according to industry figures.

The country currently has three fully Shariah-compliant banks: Gulf African Bank, the market leader, whose assets grew to Sh45 billion ($347.3 million) by December 2024; Premier Bank, formerly First Community Bank, Kenya’s first Islamic lender; and DIB Kenya, a subsidiary of Dubai Islamic Bank.

Several conventional banks also run Islamic banking windows alongside these.