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Treasury, CMA line up board to unlock Islamic funds
Reits Association of Kenya (RAK) chairman said the growth of Islamic Reits will open a new avenue for those looking for ethical and sustainable investment options.
The Capital Markets Authority (CMA) and the Treasury have started formulating a national Shariah board to guide investors on compliant products and investments and boost the issuance of Islamic bonds and Reits.
CMA Chairman Ugas Sheikh Mohamed said the demand for Islamic financial products is higher than supply, but the growth of the industry is slowed down by the absence of a centralised Shariah board.
Islamic finance players have identified Real Estate Investment Trusts (Reits) as one of the potential growth areas for Shariah-compliant capital markets products.
“There is a lot of capital out there that can be tapped for Islamic finance, and to include Islamic finance in Reit development is a good way to bring more inflows into the country and educate Kenyans on the availability of these investment tools,” said Mr Mohammed.
“The question is who certifies a product is Shariah compliant. That is where we are putting together the pieces with the National Treasury to create that governance structure that will certify a Reit or the other products as Shariah compliant at the national level, guiding the other subsidiary institutional Shariah boards,”
He added that the expectation is that the policy framework to set up the Shariah board would be done by the end of this year, paving the way for the development of regulations that will effect it.
Mr Mohammed spoke at a Reits Association of Kenya (RAK) forum in Nairobi on Thursday, which discussed Reits as a Shariah-compliant investment and the steps taken to open the market to new issuers.
RAK Chairman Geoffrey Odundo, who is also the Chief Executive at Nation Media Group, said the growth of Islamic Reits will open a new avenue for those looking for ethical and sustainable investment options.
“It is a product that is gaining a lot of interest, and we now want to create more types of Reits, including thematic Reits like what we are doing under the Islamic Reits. There is a lot of money available in the Islamic finance sector, but we have not been able to fund an avenue to funnel in that money in the right way,” said Mr Odundo.
Globally, the Shariah-compliant or Islamic Reits market is valued at $10 billion (Sh1.29trillion), with an annual compound growth of about 8.2 percent which is expected to increase the volume of outstanding issuances to $15 billion by 2029.
These Shariah Reits offer their investors an average return of 9.4 percent, compared to 8.9 percent for ordinary global capital funds.
Ordinary development and investment Reits normally distribute a set percentage of income to investors as a dividend, aligning them closely with the principles of Islamic finance which call for sharing of profits or losses between an investor and the financier, rather than an interest payment.
