THE laws regulating Islamic financing in Kenya need fine tuning to fully support sharia compliant banking, First Community Bank general manager Omar Sheikh has said.
Islamic finance is based on the sharia principle known as Murabaha in which a bank purchases goods and sells them to a client at a cost that includes a profit margin. This is because sharia compliant banking prohibits earning interest on money, hence Murabaha is the loan facility for Islamic banking.
"There is need to safeguard our operations from double taxation. Islamic concept is based on murabaha where you enter into a contract to purchase goods and then sell to a customer. The regulatory parameter needs a little more refining to support Islamic banking fully," Sheikh said.
"When we pay VAT when we buy an item, it will not be fair to charge tax again when we resell it to client."
However, Sheikh said, that at the moment there is no double taxation for the murabaha contracts but the law ought to be clear on this matter for future operations.
Sheikh also cited the loss sharing principle as a matter that creates confusion in terms of declaration and their accounting statements whereby while sharia law requires that profit and loss be shared among the bank and clients, the local industry's guidelines require that they record it as loss provision in their books.
Sheikh was speaking at a media briefing held where he outlined the bank's growth plans that include opening up four more branches by end year to raise their network to 21 outlets, signing up 177 extra agents and increasing customer numbers by another 50,000 by December.
The bank which was the first fully fledged Islamic financial lender to be licenced by the Central Bank of Kenya currently has about 100,000 active accounts.
Sheikh urged non Muslims to also seek services at the bank adding that wrong perception that the lender is restricted to Muslim clients has been the biggest challenge to its growth.