Africa next frontier as DIB Kenya bank approved

Dubai Islamic Bank PJSC’s plan to open a Shari'ah-compliant arm in Kenya by year-end may be just the start for Gulf-based lenders seeking growth outside home markets.

Dubai Islamic received “in principle approval” from the Kenyan regulator this month, Chief Executive Officer Adnan Chilwan said at a press event in Dubai. The lender still needs to get its final license, he said. Meanwhile Nigeria is educating its population about Islamic finance, the Bank of Zambia last month published guidelines for the industry and Tunisia vowed to sell its first Sukuk in the third quarter this year.

“We have been seeing more interest from African countries for Islamic finance, and Gulf Cooperation Council banks are well placed to be the ones to meet the demand,” Montasser Khelifi, a Dubai-based senior manager at Quantum Investment Bank Ltd., said by phone on 25 January. “If they’re looking for an unexplored market, the African markets are among the first to come to mind.”

Dubai Islamic’s plan shows how Shari’ah-compliant lenders in the six-nation GCC are turning overseas in a bid to sustain their growth. About 60 per cent of United Arab Emirates residents over 15 years old have accounts at formal financial institutions, according to World Bank data, compared with 42 percent in Kenya. The UAE’s population is about 9.4 million, compared with about 46 million for Kenya.

Slowing Growth

Dubai Islamic has made “very good progress” in Kenya and the new bank will operate under the name DIB Kenya, Chilwan said. The lender will hold 70 per cent of the bank, with 30 per cent owned by local partners, he said.

“I don’t think we will see an explosion of these deals, but certainly there will be a couple of other banks in the GCC that will try to expand their presence in Africa.” Apostolos Bantis, a Dubai-based credit analyst at Commerzbank AG, said by telephone on 25 January. “Primarily they will be from the UAE and some Qatari banks.”

Bank lending in the UAE may slow to as little as six per cent this year compared with about 10 per cent in 2014 as oil prices near six-year lows pushes banks to tighten credit standards and demand ebbs, according to Standard & Poor’s.

“By the end of the first quarter, if we don’t see a change in the oil price, then we’ll see the effects on the economy and then they will have to revise their target,” Bantis said. The bank’s home market is “saturated and they’re looking to diversify outside, and Kenya is one of the markets that’s offering high-growth potential.”