KBA CEO CHAT - Understanding Islamic Banking

CEO | Fazal Saib, First Community Bank, CEO
MONTH | June 2016
Chat Admin
Welcome to todays third and final CEO Chat session in this series.
Chat Admin
Today we will be hosted by Mr Fazal Saib CEO of First Community Bank and our topic of discussion is on "Understanding Islamic Banking"
Chat Admin
We look forward to a lively and informative session. As always we will commence promptly at 10am so as we wait please update your profile picture and prepare your questions and comments.
Chat Admin
If you have missed any of the previous CEO Chat sessions then don't worry, you can catch up via the Archives page http://chat.kba.co.ke/index.php?r=chat/archives where you can read the transcripts and watch podcasts.
Peter Ouma
1. is there a difference between usury, riba and interest rates? 2. how does mudharabah work?
Chat Admin
Thank you for your question Peter. We will surely answer it when the chat session starts at 10am
Chat Admin
Warm welcome to all of you that have joined us thus far. Looking forward to starting in less than 15 minutes.
nuru mugambi
Good morning everyone...looking forward to the session
Chat Admin
Welcome Nuru.
John Njoroge
Good morning friends. waiting for the session
Chat Admin
Good morning John.
Chat Admin
We are counting down the minutes now.
Conrad Karume
Good morning all. Asalam alaikum.
Chat Admin
Welcome Mr Fazal Saib to todays chat session
Chat Admin
Thank you for taking the time to be with us this morning
Chat Admin
We look forward to an informative chat
William Ondenge
Good Morning Mugambi , John , Conrad
Fazal Saib
Asalaam alaikum and Good Morning to everyone
John Njoroge
Good morning Mr. Fazal Saib
John Njoroge
Good morning William
Fazal Saib
Im happy to be here and taking your questions about islamic finance...im looking forward to a lively chat
Fazal Saib
Good morning Peter. Thanks for getting us started.
Fazal Saib
The difference between usury and riba...usury is the english word and riba is the Arabic word for usury so there is no difference between the two. Usury means in the classical definition,the excessive charges for money borrowed. And Riba means the same thing. However, the definition of interest is money charged on money borrowed.
Fazal Saib
Mudharabah is a contract between two or more parties whereby the parties share profits on an agreed, upfront ratio. So if you go into business, parties would get together and agree how much each one would recieve at the end of the period.
Joe Ngahu
Hi, this is my first time in the chat. Is Islamic Finance only for those who profess the faith?
Christine Mwaka
Can non Muslims enjoy the facilities
PAUL MUTUKU
good morning Fazal can anybody open an account if he is not from muslim community
Fazal Saib
Allow me to share some thoughts about Islamic Finance. Islamic Finance is based on the Shariah laws prescribed in the Holy book. So some of the fundamental principles in Islamic Finance is that there must be an underlying asset which means that one would have to buy and sell an asset; therefore Islamic banks do not allow money paid for money borrowed. The other principle around islamic finance is transactions have to be transparent and there should be no ambiguity in the contracts.
Fazal Saib
Joe ... great question...islamic finance is for everyone irrespective of colour, creed, religion or culture. you are very welcome to this Chat.
Fazal Saib
Welcome Christine. Absolutely is the answer.
Conrad Karume
Since no interest (Riba) is charged on borrowed funds, how does a mortgage financing contract (Aqd) work under these circumstances?
mohamed shakeel
Wat happens incase of default. How does shariah banking manage the recovery.
Fazal Saib
Welcome Paul. Anyone can open an account with an islamic bank. There are currently two fully fledged islamic banks in Kenya and about 8 islamic windows that are part of conventional banks.
Christine Mwaka
Thanks Fazal does it mean that I can borrow at 0% interest?
Fazal Saib
Thank you Conrad. Because islamic finance is based on trade, simplistically the bank would buy the house and then add a markup and sell the house to you.
Conrad Karume
Thanks Fazal, does that translate to cheaper than a conventional mortgage?
Fazal Saib
Asalaam alaikum Mohamed, it depends on the contract, if it is a debt contract (murabaha) then the bank is entitled to collect its full outstanding balance. however, if it is an equity contract then the islamic bank would collect proportionate to the equity contribution.
Fazal Saib
Christine, islamic banks do not charge interest. However, because the bank is based on the purchase and sale of assets (ie trade), there would be a markup that the bank would charge.
mohamed shakeel
Walaikumsalam.thank you for the clarification
Fazal Saib
Conrad, price is negotiated between the buyer (customer) and the seller (bank) which could be cheaper than a conventional mortgage.
Lilian Nyamongo
Hello. What are the common top myths about Islamic banking/finance?
Fazal Saib
Youre most welcome brother mohamed
Lawrence Njuguna
Hi, besides trade, do they take deposits, foreign exchange and other non interest income generating activities employed by banks?
Fazal Saib
Thank you Lilian. I think the top myth is that islamic finance is free banking. People are generally used to conventional banks charging interest on monies borrowed; therefore because islamic banks do not charge interest, people believe it is free. The other myth is that islamic banking is only for Muslims. The other myth is that profit and interest is the same, which is actually not the case. Interest is determined by many factors and normally a function of inflation; however, profit is determined by the amount a person wants to gain.
PAUL MUTUKU
is there a way muslim sisters or ladies are sensitized on islamic banking because they form a bigger market untapped market
Fazal Saib
Lawrence thank you for your question. Islamic banks operate just as any other bank and provide all banking services which includes the ones you mention and financing activities.
PAUL MUTUKU
mr Fazal in the Banks that conduct islamic banking do they do social or community responsibility like giving back to the sopciety,in helping sponsoring needy students
Fazal Saib
Paul, Islamic banks do spend significant amounts of monies in creating awareness and education of both the genders. First Community Bank for example has dedicated products for women clients.
Conrad Karume
Kindly explain to us how the Hawala Money Transfer system works. Does it fall under the regulated monetary services?
Fazal Saib
Thanks Paul, islamic banks do engage in social responsibility programs including education, health and other activities.
Fazal Saib
Conrad, banks are regulated by the Central Bank of Kenya and follow the CBK prudential guidelines for money transfers. Hawala system is outside of the banking system.
Isaac Mwaro
Insurance, savings and credit are a number of financial services which are affected by Sharia law and in Kenya we do not have many companies offering sharia compliant insurance and savings & credit services.
Fazal Saib
Lets talk about governance in islamic banks ...
cyrus maina
hello sir
Lawrence Njuguna
Were the loans awarded to Chase Bank management which were interest free in line with Islamic banking in your own view?
Fazal Saib
Besides the regulatory framework within the country, islamic banks have independent Shariah boards (scholars) that govern and oversee the implementation of Shariah rules / laws within the bank. This board keeps the bank management accountable to ensure that the highest ethical standards are upheld. Should the management not comply in its implementation, then the bank is penalized by it removing that portion of profit and giving it to charity.
cyrus maina
am cyrus maina and i deal with movies shooting as the bank ceo would you sponser us
Joe Ngahu
Thanks Fazal, just taking it from your sentence ''...must be an underlying asset which means that one would have to buy and sell an asset;...'' and ...''because the bank is based on the purchase and sale of assets (ie trade)...''
Fazal Saib
Lawrence, the Chase bank issue is still under investigation so I wouldnt comment on their islamic finance practices.
Joe Ngahu
what does it mean for products geared to say, construction finance?
PAUL MUTUKU
has the bank has expansion plan to open up more branches
Fazal Saib
Welcome Cyrus, thank you for joining in. From time to time we do contract suppliers. Contact hhussein@fcb.co.ke.
cyrus maina
thank sir
Fazal Saib
Joe good question...
Fazal Saib
When it comes to construction finance, we could do it in two ways. One, the bank buys the construction material and sells it to you. Or, the bank could become your partner in the development phase. The partnership would mean that post construction, the bank has the ability to sell its stake in the business either to you or to another investor.
Fazal Saib
Yes Paul, we would like to open branches in areas where we are not present yet. Currently First Community bank has 18 FCB branches throughout Kenya.
Joe Ngahu
Thanks a lot; I would like to explore such options further. Probably if you could share your key officer's contact?
Fazal Saib
Another question we frequently get is if only Muslims work at FCB. The answer is no. We have non muslims throughout FCB including in senior positions.
John Njoroge
Mr. Fazal, As a bank CEO what are you doing to help young generation in their small businesses?
Lilian Nyamongo
There's a lot of talk about sukuk bonds. What do you think needs to be in the Kenyan financial system to increase investment in them especially towards development projects e.g. infrastructure (apart from the creating the necessary regulatory framework) ?
Fazal Saib
Joe you are welcome to FCB please contact hhussein@fcb.co.ke
PAUL MUTUKU
mr fazal what are some investment tips you can advice youths who are new in the investmeny sector
Fazal Saib
John we are focused on the development of the SME sector which includes youth and women development. We also are involved in microfinance. We believe that SMEs are the backbone for Kenya's growth and prosperity.
Fazal Saib
Lilian you ask a very good question
PAUL MUTUKU
are there any career you can advice youths to study on to help youths to be self sustainable instead of studying to get employed
Donald Kogai
I understand Islamic Banking is about sharing profits and losses. How do we go about this particularly is instances were there is a loss ? How is that split between the buyer and seller of the credit facility? How about in situations when loss arise out of negligence?
Daniel Munene
Morning Mr Fazal,mine is just a minor complaint. Having provided a service to your prestigious organization, I in good faith delivered and raised an invoice but since then all I get is rhetoric and arrogance. Is there a way I can do a formal complaint because I really expected more from a bank that has holistic values and great customer service
Fazal Saib
With excess cash in Middle East and Islamic countries, many of these investors are looking to Africa for investment. The Sukuk or Islamic Bond is an ideal vehicle for such. Apart from the regulatory framework, we would need a bond exchange which is fairly liquid to encourage secondary market participation.
Fazal Saib
Paul i would say invest in yourself. Make sure you have a skill. and start saving from an early age.
Joe Ngahu
Thanks,
Fazal Saib
Paul I see your follow up question about areas of study...I think Kenya needs more artisans than academicians so my advise would be go into such fields.
Lilian Nyamongo
Hmmm.. I think that a great investment opportunity for Kenya since ME and Islamic countries since we do not see a lot of them taking the typical investment/aid route as Western countries and even China.
Fazal Saib
Thank you Donald. Islamic banks pool depositors money and invest in projects with clear profit share / loss ratios. Therefore, the concept of profit and loss sharing indicates an equity participation. In the event of a loss, the participants would loose their capital.
Lilian Nyamongo
I think Paul asks a good question about investment tips for the youth. It will be interesting to know your thoughts about Islamic banking and millennials and the future of Islamic banking in Kenya.
Fazal Saib
in the case of negligence the defaulting party would pay the other party
Chat Admin
Good morning all. We are drawing to a close now. Mr Saib is finalising on the remaining questions.
Fazal Saib
Daniel I am sorry that you have experienced some poor service. Please share your email and I will get in touch personally.
Chat Admin
Thank you all for your participation and the great questions posed. I think you will all agree it has been a highly informative session.
John Njoroge
Thanks Mr. Fazal Saib for the session. Have learnt alot.
Benjamin Thande
Thank you Mr. Fazal for clarifying all our queries.
Fazal Saib
Thank you all for a brilliant chat session. Please contact us for your banking needs. We are here to serve you.
Fazal Saib
Karibu Benjamin
Chat Admin
Thank you Mr Fazal Saib for your time and depth of knowledge on the topic of Islamic Finance.
Fazal Saib
Thank you John.
Chat Admin
This concludes this seasons CEO Chat sessions. We hope you have all enjoyed the topics and found them informative and useful.
Daniel Munene
Munnsenterprises@gmail.com
Chat Admin
Keep an eye out on Social Media, in the press and on the chat.kba.co.ke website for information on the next CEO Chat series.
Fazal Saib
Thank you Daniel
Daniel Munene
Thank you sir
Chat Admin
For those that did not catch the full session of missed any of the previous sessions please check the Archives page where you can find transcripts and podcasts of all the past CEO chat sessions.
Chat Admin
Thanks again and enjoy the rest of your Friday and the weekend ahead.
Conrad Karume
Shukran Jazilan thanks for hosting us.
mohamed adan
How come Islamic Banks Do not give unsecured Personal Financing unlike conventional banks?