2.2: Capital market financing for Kenya's core strengths

Measurement
Level of financing for infrastructure projects
Working Group
IC
Implementation Progress

Policy Paper on securitization as a mechanism for infrastructure financing was submitted to NT for consideration in 2016.
Stamp Duty exemption for tax neutrality for Real Estate Investment Trusts (REITs) and Asset-Backed Securities (ABS); Exemptions from VAT (Value Added Tax) for REITs, Islamic Finance Products and ABS and Exemption from payment of Stamp Duty on the transfer of titles relating to Sukuk arrangements achieved through the Finance Act 2017.
New market segments for listing of Real Estate Investment Trusts (REITs) established in 2016.

In May 2017, the Authority published a Policy Guidance Note (PGN) to facilitate the issuance of Asset-Backed Securities (ABS). The PGN sets out guidance on the interpretation and application of securitization provisions in the Capital Markets Act. The PGN also provides important clarifications of areas where the Act or its application were deemed to be unclear, following industry engagement.

In collaboration with World Bank – through the Financial Sector Support Project (FSSP), the Authority procured a consultancy aimed at determining the funding gap at both the National and County level, to help facilitate access to finance for capital projects. The consultancy was conducted through a two-phase study (with phase I focusing on state-owned enterprises in the country, conducted between 25 September and 6 October 2017, and Phase II focusing on County Governments, conducted between 5 and 20 April 2018). The consultant submitted a final draft report in December 2018 that was exposed to a stakeholder forum for a discussion on the key policy issues emanating from the recommendations in the report. The report was then submitted to the National Treasury for comments. The Authority incorporated these comments and resubmitted the report the National Treasury for concurrence ahead of the National Validation Workshop anticipated to be held within 2019/20 financial year.

Timelines
2014-2016
 
Status
Completed
Measurement
Funds raised for infrastructure projects
Working Group
WG1
Implementation Progress

The IFC offered technical guidance to potential ABS issuers including; Kenya Pooled Water Fund, Capital Tool Company, Umati Capital Kenya Limited, and Vaell as well as their legal and transaction advisors by going through their respective ABS applications with them.

The IFC in collaboration with the Authority also conducted workshops to sensitize potential issuers such as Kenya Roads Board and the KWS on the ABS framework.

Timelines
2014-2016
 
Status
Completed
Measurement
Number of funds and value of assets under management.
Working Group
WG1
Implementation Progress

The implementation framework for the actions contained in the World Bank/IFC report on mutual funds was developed and adopted.

A standard Reporting template for CIS has been developed by the Authority and adopted by the market and is now operational.

The Authority is now progressing the development and adoption of a performance reporting standard for the sector benchmarked on GIPS i.e. Global Investment Performance Standards.

Timelines
2014-2016
 
Status
Completed
Measurement
Value of assets under management
Working Group
IC
Implementation Progress

Tax Neutrality for Real Estate Investment Trusts (REITs) addressed through exemption of stamp duty and VAT
Proposal to recognize Special Purpose Vehicles as part of a REITs company for tax purposes was submitted to The National Treasury & Planning for consideration in the policy proposals for the 2019/20 budget cycle. 

Timelines
2016-2020
 
Status
Completed
Measurement
Islamic Finance included in updated capital market legislation.
Working Group
WG3
Implementation Progress

The Finance Act 2017 amended the definition of securities in the Capital Markets Act to include securities and collective investment scheme products structured in conformity with Islamic principles of investment.

The development of the National Islamic Financial Policy Paper to inform the regulatory framework for Islamic Capital Markets is in progress.

As at December 2019, engagements are ongoing between the National Treasury and potential partners to agree on the terms of reference for procuring a consultancy to draft the policy document.

Timelines
2014-2016
 
Status
Completed
Measurement
Islamic products and services covered in each piece of financial sector regulation.
Working Group
IC
Implementation Progress

The Project Management Office was set up in 2015 drawing membership from all the financial sector regulators under the technical guidance of an international Islamic Finance expert (IFAAS).

Subsectoral research papers developed to assess status and operational challenges of Islamic Finance in Kenya in 2016. Draft amendments to the regulatory framework developed.

Proposed amendments to the Capital Markets Act, the Cooperatives Societies Act and Sacco Societies Act to facilitate the issuance of shariah-compliant finance products adopted vide the Finance Act 2017.

The Public Finance Management Act (PFMA) was amended to provide for the issuance of sovereign Sukuks (Islamic bond in March 2017);

Amendment of tax statutes to provide for the equivalent tax treatment of these Islamic Financial products with the conventional financial products was adopted in March 2017.

Sub-sector specific White Papers already developed to form the basis of developing a National Policy.

The Terms of Reference of a consultancy to develop the National Policy for Islamic Finance already developed.

Meetings held with the National Treasury to determine the possibility of Financial Sector Deepening Africa supporting the drafting of the Islamic Finance National Policy.

Timelines
2016-2020
 
Status
In Progress (Within Schedule)
Measurement
Improved knowledge and skills on Islamic Finance
Working Group
IC
Implementation Progress

The Project Management Office (PMO) which was set up in 2015, drawing membership from all the financial sector regulators and international expert consultants has been coordinating all activities on Islamic Finance in the country.

In order to inform strategy, the existing Islamic Finance landscape in Kenya, a scoping study that involved the collection of all relevant initial information regarding the current status, nature, challenges, potential and the performance of the Islamic finance industry in Kenya was done, leading to an inception report in April 2016.

The inception report informed subsequent reforms to the existing regulatory framework (the Public Finance Management (PFM) Act, Income Tax Act, Stamp Duty Act, Value Added Tax Act, Co-operative Societies Act and Sacco Societies Act) as contained in the Finance Act 2017/18. These amendments were necessary to level the playing field to enable the Islamic Finance infrastructural system to compete fairly against the conventional system.

Further, effective December 2016, the Authority is a member of the Islamic Financial Services Board (IFSB) and is leveraging on this membership to improve Kenya's local and international appeal as an international financial hub.

To deepen the level of knowledge and skills on Islamic Finance, key stakeholders have been receiving education and training locally and internationally from 2015, to improve capacity and prepare them for their expanded role as key advocates of Islamic Finance concepts and the operation of this system of finance in Kenya.

More reform initiatives on the Islamic finance policy framework, Sukuk issuance, Islamic governance and awareness are being pursued in order to ensure effective supervision of Islamic financial institutions as the country prepares to play an Islamic finance regional hub role.

Timelines
Continuous
 
Status
Continuous
Measurement
Programmes implemented as per the annual workplan.
Working Group
WG3
Implementation Progress

Policy proposals are continuously submitted to the National Treasury.

The key programmes and events held through industry coordination and relevant partnerships are as follows:

  • 25-26 January 2016 CMA partnered with Awal Consulting and Islamic Research and Training Institute to organise the first international Islamic conference in Kenya held in Nairobi.
  • 17 February 2016 together with GBS Africa, CMA co-hosted the East Africa Islamic Finance Summit held in Nairobi.
  • December 2016  CMA joined IFSB as an Associate Member
  • 4-6 April 2017 - The PMO was represented at the 2nd Sub-Saharan Africa Islamic Finance convention held in Kampala, Uganda and the IFSB held it's AGM in Kuala Lumpur, Malaysia hosted by Bank Negara, Malaysia;
  • 10-11April 2017 - 2 participants each from the Financial Sector Regulators attended the 2nd East Africa Economic Summit held at Villa Rosa Kempinski Hotel, Nairobi;
  • 17-18 July 2017 - Training on Sukuk held in Naivasha;
  • 22 August 2017 - Meeting at the National Treasury NT, NIFCA, PMO and REDmoney Group which is the global provider of specialized Islamic Financ betweeial Media Services;
  • November 2017 - NSE and Nasdaq Dubai sign a Memorandum of Understanding to fast-track development of a Sukuk sector at the bourse;
  • 29 November 2017 - The National Treasury convened the second IFCC meeting in which members committed to the ideals of developing Kenya as an Islamic Finance hub and signed the TORs.
  • 14-16 May 2018 - Kenya hosted the IFSB Regional Workshop, an initiative which is part of the Facilitating Implementation of IFSB Standards (FIS) workshop series.
  • 15 November 2018 - Through the National Treasury & Planning, Kenya hosted a workshop on sub-sectoral White Papers for the Financial sector, in preparation for the drafting of a harmonized Financial Sector National Islamic/Participatory Finance Policy document for Kenya.
  • 29 March 2019-The Islamic Finance Project (PMO) team holds consultations to coordinate the plan for the drafting of a harmonized National financial sector-wide Policy on Islamic Finance.
  • 22nd July 2019 – A consultative meeting is held between the National Treasury & Planning, PMO and FSDA to evaluate the possibility of a partnership to support the preparation of the National Policy on Islamic Finance.
  • 24th – 30th October, 2019 - Communication and consultations on TORs for the consultancy on the National Policy between National Treasury & Planning and FSDA continue agreement still pending.

 

Timelines
2014-2016
 
Status
Continuous
Measurement
Working Group
Implementation Progress

Timelines
--Not Set--
 
Status