NAIROBI, May 21 (Reuters) - Gulf African Bank, Kenya's first Sharia or Islamic Law compliant bank, will provide a platform for increased investments in Africa from the Middle East, its chief executive said on Wednesday.
Flush with cash from a six-fold increase in oil prices since 2002, Gulf investors are increasingly looking abroad and Islamic banks are tapping into booming demand from the world's 1.3 billion Muslims for investments that comply with their beliefs.
For Islamic finance to comply with sharia, financiers charge no interest and do not invest in areas such as alcohol, pork, arms, pornography or gambling.
"Kenya can be a beacon for spreading of this way of doing ethical banking in Africa," said Gulf African Bank's Chief Executive Najmul Hassan.
"It will attract a lot of investments from the Middle East because that industry (banking) is looking for opportunities and I think Kenya provides a great opportunity."
Gulf African opened its first branch in January at the height of post-election instability in Kenya. It now has three branches and aims to open 22 more over the next 18 months.
He said shareholders of the bank who include Oman-based Bank Muscat <BMAO.OM>, private equity group Istithmar and the Eastern and Southern African Trade and Development (PTA) Bank are making an initial investment of $25 million.
More capital would be made available later, he said.
"If this way of banking becomes successful it will also encourage the funds from the Middle East to be channelled into the African market," said Hassan.
MIDDLE EASTERN INTEREST
Kenya has seen an increase in investments from Middle Eastern countries.
Kuwait's Agility was part of a consortium that acquired a controlling stake Telkom Kenya last year while UAE's Etisalat <ETEL.AD> is a partner with Kenya in the laying of the first undersea fibre-optic cable to east Africa.
Saudi Arabia's Kingdom Hotels Investments has an interest in Kenya's Fairmont Hotels and Resorts.
Hassan said the bank was not exclusively targeting Muslim customers as many people expected.
"We are looking at people who are averse to interest, but we believe our target market is every ethical Kenyan irrespective of his colour, religion or creed," he said.
He explained that Islamic banks differ from conventional ones in that instead of lending money, they buy assets and rent them out to the would be borrowers. They however charge customers for normal banking services such as money transfers.
Gulf African plans to enter the regional market in Tanzania and Uganda after it had established itself in Kenya, the regional economic powerhouse.
Hassan said the bank was concentrating on building customer deposits. Gulf African Bank is also counting on infrastructure funding requirements to support its growth strategy.
"Any market like Kenya which is high growth, the need for capital is there," said Hassan.
The bank's business was first hit by the political crisis that followed President Mwai Kibaki's disputed re-election in December.
"The first three months there was so much turmoil but now that stability has returned, the results of this bank are better than expectations," he said, adding it was too early to give details.
He added the bank would look into developing Sukuk, the Islamic equivalent of a bond, which is backed by physical assets, and pay dividends or rent to shareholders, rather than interest.
