Competition for multi-million shilling corporate deals is set to increase as fast growing First Community Bank (FCB) joins the fray. The fully-fledged Islamic bank said it has applied to the Capital Markets Authority (CMA) for an investment banking licence to tap deals in Islamic structured finance, issuing of bonds and overseeing mergers and acquisitions.
"We are close to getting a licence for a Sharia compliant investment banking subsidiary that will be up and running soon," said Mr Nathif Adam, the Chief Executive.
He added the bank has fulfilled all the requirements, the regulator has completed a due diligence of its operations and the licence should be granted soon. FCB’s foray into investment banking is part of a fast growth stra tegy that the bank has opted for in its quest to offer a one-stop-shop solution to its Islamic niche market. Last week, FCB, which launched operations last year after receiving approval from the Central Bank to operate as a Sharia (Islamic law) compliant bank, opened two more branches in Nairobi, bringing its total branch network to nine. Plans are also underway to open eight more branches across the country within the next seven months.
"Expanding fast is a strategy that we hope not to go wrong with because we are doing our mathematics well," said Adam.
Recently, it launched a product dubbed Labbeyk Hajj Savings Account that would enable Muslims save for the Hajj pilgrimage.
Islamic banks were allowed to operate after an amendment to section 53 of Banking Act in 2006 that removed prohibitions in trading in and holding of fixed assets. They have been opening branches in particularly Muslim-dominated areas in Nairobi, Mombasa and North Eastern, which would explain their financial performance due to heavy initial capital investment.
FCB customer deposits stood at Sh2.1 billion by end of December compared to Sh1 billion in September. Loans and advances increased from Sh1.8 million in September to Sh18 billion by December 31. The bank, therefore, increased its loan loss provision from Sh4.1 million to Sh8.7 million in the same period. Its core capital stood at Sh775 million compared to the statutory minimum of Sh250 million. 
It was earlier reported that First Community Bank has recorded a pre-tax profit loss of Sh307 million for the year ending December 31, 2008. According to the bank's financial report signed by the chairman Hassan Varvani and chief executive officer Nathif Adam, FCB’s loss increased from Sh191 million recorded by September 2008. This was the first financial report by the fully fledged Islamic bank that was provided with a licence to operate by the Central Bank of Kenya on May 29, 2007 and opened its doors to customers in June 2008. It means the bank results are based on the six months that it has been in operation. It was reported that Gulf African Bank, the other Islamic bank operating in the country, and which was licensed almost at the same time, last week also posted a loss in its first year of business.
However, FCB's CEO Mr. Nadhif dismissed reports that the bank had recorded a pre-tax loss of Sh307 million for the year ending December 31, last year as a fallacy because set up investment cannot constitute a loss. "The reality is that it was not an operating loss. It is a fallacy because we are growing," he stated. Since its launch in May, FCB has extended banking services to areas erstwhile ignored by conventional banks like North Eastern Province where it has one branch and plans to open three more branches before the end of the year. To date, FCB has disbursed more than Sh2 billion in loans and is one of the four banks picked to work with the Youth Enterprise Development Fund in dispersing Sh1.5 billion to empower the youth.
The Other Islamic Bank, Gulf African Bank has also opened several branches in various towns among them an able team in the Garissa branch headed by my freind Ali Noor Shabure, formerly of KCB, now the branch manager. Shabure has previously been working for KCB and his last posting was in Moyale. He is required to harness his past relationships and knowledge of the business community to add value to our services in Garissa for the Islamic Bank. The Garissa branch is the 7th to be opened since Gulf African Bank started operations in January this year. The target is to have 11 operational branches by end 2008 and we are on course.
First Community Bank Ltd. (FCB) has previously stepped up its recruitment of key personnel with the objective of commencing operations. The bank, which has links to Kuwaiti investors has recruited senior personnel to head its risk management, operations, treasury, corporate and retail banking arms as it opens branch networks through out the region. In May 2007, it was granted approval by the Minister of Finance to conduct “banking business’’ under the Banking Act. First Community is now a fully fledged Islamic Bank.
In 2006, Section 53 of the Banking Act was amended to enable the Minister of Finance exempt institutions from provisions of Section 12 of the Act that prohibit trading and holding of fixed assets. This amendment was intended to promote the introduction of innovative products in the banking sector, including Islamic Banking products that may require an institution to hold a fixed asset such as in the case of mortgage financing or goods and commodities in the case of consumer financing. Among the banks waiting for the approval of operating licenses are Dubai Bank and Gulf Bank. A number of local banks already offer Islamic banking products targeting the country’s estimated 11 million Muslims. Since the amendment, several banks have opened up windows offering interest free-based accounts to accommodate religious sensitivities of some Muslims.
Globally, HSBC and UBS have created separate brands for Muslims while Maybank in Malaysia and Samba Financial in Saudi Arabia have opened special branches that sell only Islamic banking products.
Kenya's first Islamic lender-First Community Bank has set out branches across the country under it's the appointment of veteran banker Nathif Adam as the chief executive officer. With a Sh1 billion capitalisation - four times the statutory base -the bank will hit the ground running in anticipation of intense competition from other banks that have unveiled products targeting Muslims.
"It was in line with our business strategy. With this kind of money, we are leaving nothing to chance," Mr Adam told Business Daily.
The bank has opened branches in the Coast and North Eastern provinces which have largely Muslim populations and in city estates such as Eastleigh where Muslims are the majority.
"Our plan was to have as many branches as possible in all the Muslim-dominated regions of Kenya, including North Eastern Province and as many branches as possible in Coast Province," says Mr Adam, adding that the new bank has also opened a branch in Garissa last February. The move is seen as a major step in opening up the regions to the financial sector which comprise a substantial proportion of the unbanked rural population across the country. The initial roll out targets a branch in Eastleigh -Kenya's "Little Mogadishu" - another in Mombasa and a third at Prudential House within Nairobi's Central Business District. The bank has already hired 55 members of staff across all ranks.
Prior to his appointment, Mr Adam, 58, was the Senior Vice-President and Head of Investments at Sharjah Islamic Bank in the United Arab Emirates (UAE). A career Islamic banker, he insists that he was the pioneer of Islamic banking in Kenya.
"It is not true that Islamic Banking came into vogue in 2005 . I had already indicated my desire to start an Islamic bank to the CBK way back in 1984," he said. Apart from FCB, the Gulf African Bank is the other bank in Kenya with a licence to operate as a fully Islamic bank.
The La Riba account offered by Barclays Bank was the first ever Sharia compliant account in Kenya. The account was set up in December, 2005, and is reported to have attracted nearly Sh560million from traders over the past year.
Mr Adam, however, says there are challenges to be overcome if the new bank is to make an impact in the country. Chief among them is association of Islamic banking with terrorism.
"We have to be realistic. Getting rid of the notion that Islamic banks are conduits for financing terrorism will be one of my biggest challenges," he says. The other is to open up the bank to all Kenyans.
"As a matter of priority FCB will offer shares to the public through an IPO at the Nairobi Stock Exchange," Mr Adam said. Under Kenyan laws, a company has to be in existence for at least five years before it can be listed unless if it is floated at another stock exchange.
Currently, FCB's main shareholders include Sharjah Islamic Bank of the UAE, Al- Madina investment & Finance and Zummoroda Investment company (both of Kuwait) and a number of Kenyans (30 per cent).
Although the bank will be open to people outside the Muslim faith, its main target will be the Somali community who are known as astute international traders. "If we get them and more, we will be a force to reckon with in Kenya's banking industry," Mr Adam said.
The Somali community in Kenya is estimated at more than 2 million and has a savings base in the region of Sh800 million. Kenya Commercial Bank (KCB), K-rep Bank and Dubai Bank, also offer shari'a compliant products targeting the Kenya's 1 million Muslims. Other banks such as Imperial Bank are also in the process of introducing similar products before the end of the year.
The emergence of shari'a complaint bank products was made possible through amendments made to section 53 of the Banking Act last year, removing prohibitions on trading in and holding of fixed assets.
The emergence of shari'a complaint bank products was made possible through amendments made to section 53 of the Banking Act last year, removing prohibitions on trading in and holding of fixed assets.
Again, Path Solutions, the leader in the provision of high quality integrated Sharia-compliant software solutions to the world's Islamic banking industry announced that First Community Bank (FCB) Kenya has gone live using iMAL Islamic Banking & Investment System, only 4 months after the project kick off date.
FCB was granted an approval to pioneer Islamic banking in the country by the Central Bank of Kenya in May 2007 and immediately chose Path Solutions' iMAL System after extensive and competitive vendor selection process that included other major global solutions' providers. By deploying iMAL, FCB will provide premium Sharia compliant Retail, Commercial services and Investment banking solutions to meet the diverse needs of its clientele.
Hassan Muhammud, Head of Business Technology & Project Manager at FCB said:
'It was important to select a partner that shares our bank's grand vision on Islamic finance. Indeed, Path Solutions understood our business model, are adaptive and flexible in perceiving Kenya's dynamic financial requirements - with special attention to Shariah principles and compliance'. And he added: 'We are proud to have chosen the right technology solution not only to cater for our current business requirements but also to support us in the fast dynamic growing Islamic finance industry. Last but not least, we thank Allah for this achievement as we usher a new era in Kenyan banking with the birth of FCB. Verily, this success is an enormous blessing to everyone in the East African region.'Commenting on the Go Live, Raida Hafez, Path Solutions' Project Director said: 'The whole implementation process went extremely well, largely because of the quality and commitment of both teams'.
