Introduction
A legislative proposal seeking to amend the Banking Act, Cap. 488, to fill the lacunae in licensing and supervision of islamic banks or islamic financial institutions is undergoing pre-publication scrutiny before the Departmental Committee on Finance and National Planning of Kenyan Parliament.
The Proposed Banking (Amendment) Bill, 2023 is a legislative proposal sponsored by Hon. Yusuf Mohamed Farah, M.P., Member for Wajir West Constituency.
According to the sponsor of the legislative proposal, the principal object of the legislative proposal is to amend the Banking Act, Cap. 488, to empower the Central Bank to make regulations on licensing and supervising of an Islamic bank or an Islamic financial institution. The object of the legislative proposal is to address the need for a regulatory framework which has become necessary since international banks offering Islamic products are keen on breaking into the financial market in Kenya in order to exploit the full potential of Islamic banking.
Overview of the legislative proposal
Clause 2 of the legislative proposal seeks to amend section 2 of the Banking Act (interpretation section) to amend various definitions and insert a new definition as shown below.
- Amendment of the definition “bank” to include Islamic bank within the definition
| Definition in the Act | Proposed amendment |
| “bank” means a company which carries on, or proposes to carry on, banking business in Kenya but does not include the Central Bank; | “bank” means a company which carries on, or proposes to carry on, banking business in Kenya and includes an Islamic bank but does not include the Central Bank; |
- Amendment of the definition “financial business” to bring Islamic banking within its ambit
| Definition in the Act | Proposed amendment |
| “financial business” means—
(a) the accepting from members of the public of money on deposit repayable on demand or at the expiry of a fixed period or after notice; and (b) the employing of money held on deposit or any part of the money, by lending, investment or in any other manner for the account and at the risk of the person so employing the money; |
“financial business” means—
(1) (a) the accepting from members of the public of money on deposit repayable on demand or at the expiry of a fixed period or after notice; and (b) the employing of money held on deposit or any part of the money, by lending, investment or in any other manner for the account and at the risk of the person so employing the money; (2) (a) the accepting from members of the public of money on deposit repayable on demand or at the expiry of a fixed period or after notice on terms that comply with the Muslim religion; and (b) the employing of money held on deposit or any part of the money, by lending, investment or in any other manner for the account and at the risk of the person so employing the money on terms that comply with the Muslim religion; |
- Amendment of the definition “financial institution” to include Islamic financial institution within the ambit of the definition
| Definition in the Act | Proposed amendment |
| “financial institution” means a company, other than a bank, which carries on, or proposes to carry on, financial business and includes any other company which the Minister may, by notice in the Gazette, declare to be a financial institution for the purposes of this Act; | “financial institution” means a company, other than a bank, which carries on, or proposes to carry on, financial business and includes an Islamic financial institution or any other company which the Minister may, by notice in the Gazette, declare to be a financial institution for the purposes of this Act; |
- Insertion of new definitions “Islamic bank” and “Islamic financial institution” as follows—
“Islamic bank” means a body corporate or other body of persons, carrying on, whether on their own behalf or as agent for another, banking business that complies with the Muslim religion, whether in Kenya or elsewhere;
“Islamic financial institution” means a body corporate or other body of persons, carrying on, whether on their own behalf or as agent for another, financial business that complies with Muslim religion, whether in Kenya or elsewhere;
The legislative proposal also seeks to amend section 55 of the Banking Act (Regulations) to insert a new subsection (3) to enable the Central Bank of Kenya to make regulations on licensing and supervising of an Islamic bank or an Islamic financial institution. Its proposed new subsection (3) provides as follows—
“(3) Without prejudice to the generality of subsection (1), the Central Bank may make Regulations as are necessary or expedient to give full effect to the provisions of this Act including—
- licensing and supervising of an Islamic bank or an Islamic financial institution; and
- such other measures necessary for regulation;”
Section 55 of the Banking Act provides as follows—
Regulations
55. (1) The Central Bank may make regulations generally for carrying out the purposes and provisions of this Act.
(2) Without prejudice to the generality of subsection (1), the Central Bank may, in regulations, prescribe penalties to be paid by institutions, credit reference bureaus (or any other person) that fail or refuse to comply with any directions of the Central Bank under this Act or Prudential Guidelines, which shall not exceed twenty million shillings in the case of an institution or credit reference bureau, or one million shillings in the case of a natural person, and may prescribe additional penalties not exceeding one hundred thousand shillings in each case for each day or part thereof during which such failure or refusal continues.
Prepublication scrutiny
Standing Order 114(7) of Kenya’s National Assembly Standing Orders provides that the Departmental Committee to which a legislative proposal is referred to for prepublication scrutiny shall consider the proposal and submit a report to the Speaker within thirty (30) days recommending whether or not the proposal should be proceeded with.
Prepublication scrutiny is a winnowing process where the Committee broadly scrutinizes a legislative proposal for soundness of policy in order to determine whether it should recommend whether the legislative proposal should be published as a Bill or not.
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ayes & nays