CMA banks on Islamic Capital Markets to stir growth in the sector

The Capital Markets Authority (CMA) is in the process of activating an Islamic Capital Market initiative to tap what is an estimated $3.95 trillion (Sh559.5 trillion) global market.

According to CMA chief executive officer Wyckliffe Shamia, the authority has already engaged stakeholders in the market and is currently drafting proposals for policy makers, with a view to obtaining a legal framework to help run instruments that comply with Islamic principles.

Islamic Capital Markets (ICM) is basically a series of activities in the capital market that comply with Islamic principles. The sub-sector promotes Sharia-compliant securities as alternatives to conventional ones, and provides investment opportunities for a wide range of investors.

It has instruments like Murabahah Sukuk, Ijarah Sukuk, ordinary stocks, prefered stocks, Islamic Mutual Funds and single stock features that enable financial activity without disobeying the Sharia law.
Growth potential

The ICM is excepted to hit $5.9 trillion (Sh835.7 trillion) by 2026 based in its growth potential.
This as the Government is considering issuance of a Sukuk (Islamic) bond in the global market to pay off its $2 billion (Sh283.3 billion) Eurobond due in June next year.

“We are in the process of making proposals to policy makers so that we see a legal framework, a policy position around Islamic finance within Kenya. Hopefully once this is in place, we shall see a bit of action in terms of tapping that market which we all understand can be very liquid,” Shamia said.

Speaking during a media briefing where the authority reviewed market activities for the quarter ending June 2023, Shamia said the authority was also reviewing several legal frameworks, most of which have been overhauled to re-invigorate the markets as it had been felt some of them were outdated.

Some of the regulations being looked at and presented to the Ministry National Treasury and Economic Planning  and  the Attorney General’s office for review include those on credit rating, licensing, as well as takeover and mergers.

“We hope that once we look at these regulations, we will have activated the market because one of the issues which we did realise was perhaps the regulations had served us for a very long time and they were therefore due for revision and some overhauling,” he said.

According to Shamia, CMA is also engaging policy makers and stakeholders on how to enable counties to tap the markets for finance, as most opportunities sit in the counties.

The 47 governor’s vision is to have a short term Sh100 billion treasury bond issue, proceeds of which will be put in the consolidated fund where money will be drawn for recurrent expenditure.
Securitisation will be backed by the county equitable transfer.

Speaking at the same forum, the CMA director of policy and market development Luke Ombara said the authority has made submissions to the National Treasury for enhancement of the maximum pay-out to the Investor Compensation Fund (IFC) to Sh200,000 from the current Sh50,000.