KCB Bank Tanzania’s role in pioneering financial inclusion through Islamic financing

In today’s rapidly evolving global landscape, the concept of financial inclusion has emerged as a critical driver of economic growth, poverty reduction, and social development.

Financial inclusion is the availa­bility and equality of opportunities to access financial services and is increasingly recognized as a fun­damental right and a catalyst for achieving sustainable development goals.

Across the globe, billions of people remain excluded from formal finan­cial systems, limiting their ability to save, invest, and protect themselves against financial shocks.

This is due to various reasons including for some, the Islamic laws which strongly place an embargo on issues related to interest (riba).

However, advancements in tech­nology, coupled with innovative business models and supportive regulatory frameworks, have paved the way for transformative changes in the financial inclusion landscape including the introduction of Islam­ic banking services.

Islamic banking services have emerged as powerful enablers, breaking down barriers to entry and reaching out to Muslim popula­tions while equally being available to non-Muslims as well.

Islamic banking operates on the principles of Shariah, or Islam­ic law, which doesn’t comply with among other things, the concept of interest payment (riba) and instead promotes risk-sharing and ethical investing.

Tanzania, like other countries around the world, faces the chal­lenge of financial inclusion stem­ming from the Islamic laws, but the presence of KCB Bank has greatly contributed to addressing this chal­lenge.

With the rise of Islamic finance as a global phenomenon, KCB Bank has recognized the importance of offering Sharia-compliant banking solutions to its clientele.

Amour Muro, Head of Islamic Banking at KCB Bank, says Islam­ic banking services are offered by the bank under the Islamic window dubbed ‘KCB Sahl Banking’. KCB was the first bank to offer the ser­vices when it began in 2008 with the aim of promoting financial inclu­sion.

“The main purpose of establishing an Islamic window was to fill the widening gap that exists in the pro­vision of financial services for people of the Islamic faith to enable them to meet their financial needs having long been deprived of the access to conventional banking services on the grounds of failure to adhering to Islamic law, that defies interest among other things,” says Muro.

KCB Islamic banking adheres strictly to these principles, offering a range of products and services tai­lored to meet the financial needs of Muslim customers while remain­ing accessible and beneficial to non-Muslims as well.

“All of our agreements rule out supporting business or activities that are not Sharia-compliant, meaning anything that Islamic laws deems as harmful to the community or nation such as alcohol, gambling, betting or casino businesses as well as anything that is pro the virtues of interest,” says Muro.

One of the cornerstones of KCB Bank Islamic banking is the concept of Mudharabah, or profit-sharing. Under this arrangement, customers and the bank enter a partnership where profits and losses are shared in accordance with pre-agreed terms.

“In Mudharabah contract prof­its are shared between KCB Bank and customers at pre-agreed profit ratio. This ensures that the bank has a vested interest in the success of its customers’ ventures, fostering a sense of partnership and trust,” says Muro.

Another key offering under the KCB Sahl banking is Musharakah, or joint venture financing. In this model, the bank and the custom­er contribute capital to a project or investment on an agreed-upon ratio. Profits are then split according to the ratio of investment, while losses, if incurred, are shared based on the initial contribution.

In addition to these traditional Islamic financing models, the KCB Sahl Banking also provides a range of other services, including; Mura­baha financing (cost plus financing), commodity Murabaha (Tawarruq), Musharakah Financing (partner­ship), Ijarah financing (leasing), Sukuk (Islamic bond).

Fursa Sukuk-First in Sub-Saharan Africa

In 2022, KCB bank launched the first public Islamic bond ‘Fursa Sukuk’ to finance KCB Sahl banking targeting to raise Tsh10 billion. The bond was oversubscribed by 10 per­cent testifying market’s appetite for Islamic products.

The bond is now listed in the Dar es Salaam stock Exchange (DSE) allowing owners to buy and sale their shares.

Islamic Insurance-Takaful

Muro says that apart from those services and products, the bank will soon start offering a Sharia-com­pliant insurance service known as “Tafakul” in partnership with exist­ing Takaful operators.

Explaining the difference between Tafakul and conventional insur­ance services, Muro said, “Tafakul is a cooperative scheme based on mutual assistance and cooperation between participants. It involves participants contributing to a com­mon pool and receiving compensa­tion from that pool in the event of a valid claim. Premium is replaced by contributions which remain under the participant’s ownership and can be invested for a profit return. If a participant’s contract period ends without encountering any challeng­es that would require them to claim their money, the Takaful company can distribute that money as profit to its clients.”

These products are designed to meet the diverse needs of custom­ers while ensuring compliance with Sharia principles.

Muro says, KCB Sahl banking is not just about adhering to tradition; it’s also about embracing innovation. The bank leverages cutting-edge technology to provide customers with convenient and efficient bank­ing services.

“With our commitment to eth­ical principles, customer partner­ship, and community development, we’re poised to become a leader in the Islamic finance industry,” says Muro.

As KCB Sahl banking continues to expand its footprint, it remains ded­icated to providing innovative solu­tions that meet the evolving needs of its customers. Moreover, KCB Bank recognizes the importance of edu­cation and awareness in promoting Islamic finance.

“The bank invests in educational initiatives and outreach programs to help customers better understand the principles and benefits of Sha­ria-compliant banking. By empow­ering customers with knowledge, KCB Bank aims to foster trust and confidence in its Islamic banking offerings,” says Muro.

Partnerships - AzamPesa Trust Account

Furthermore, KCB Bank Islamic Banking is committed to fostering partnerships with Islamic financial institutions and regulatory bodies within and outside the country. By collaborating with industry stake­holders, the bank seeks to contribute to the growth and standardization of Islamic finance on a global scale.

“One of the partnerships we have currently entered into with is Azam­Pesa through which customers can access financial services via mobile phones that comply with Islamic law. Through these partnerships, we can leverage best practices and expertise to further enhance our Islamic banking offerings,” says Muro.

KCB Islamic Banking stands at the forefront of the Islamic finance industry, offering a comprehensive range of Sharia-compliant products and services that combine tradition with innovation.

With its unwavering commitment to ethical principles, customer sat­isfaction, and community develop­ment, KCB Bank is poised to con­tinue making a positive impact in the lives of its customers and the broader Islamic finance community.

Are you looking for a bank that adheres to Islamic banking prin­ciples? Look no further than KCB Bank. We offer a range of Islamic banking services tailored to your faith. Whether it’s for your business, personal needs, or your children’s future, we have you covered. Expe­rience banking that aligns with your beliefs. Visit us today.