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Islamic banking is rooted in fairness, transparency, and shared prosperity. Its foundation lies in Suratul Baqarah 2:275, which declares:
“Allah has permitted trade and forbidden riba (interest).”
In this context:
Riba refers to guaranteed gains made without risk; fixed interest on loans or deposits. Sharia prohibits it. Return, on the other hand, means profit earned through real trade or partnership, where both parties share risk and reward. Islamic banking therefore promotes ethical growth. Wealth earned through effort, not exploitation.
The core financial principles of Islamic Banking have remained unchanged for over 1400 years. Globally, the modern Islamic banking movement took off mid-20th century, especially in Muslim majority countries wanting finance aligned with Islamic values. Modern Islamic banking began in the 1960s with the establishment of the first Sharia compliant banks in Egypt. It has since grown into a global financial system guided by ethical and faith based principles. In Kenya, Islamic banking really started taking shape in the 2000s when the Central Bank of Kenya approved Sharia compliant products. Gulf African Bank and First Community Bank became the early fully Sharia compliant banks.
Kenya’s legal framework is evolving to accommodate Islamic banking. Key legal provisions include:
Section 16A(2) of the Banking Act which permits institutions operating under Sharia to receive a “return” instead of charging interest. This legal recognition is central to allowing Islamic banking to function under Kenyan law. The Banking (Amendment) Bill, 2023, sponsored by Hon. Yusuf Farah, seeks to amend the Banking Act to define “Islamic bank” and “Islamic financial institution” clearly, and empower the Central
Bank to license and supervise them appropriately. However, there is currently no separate Islamic Banking Act; institutions must often rely on exemptions from certain sections (e.g. trading restrictions) or regulatory interpretations to operatefully in line with Sharia.
Kenya is home to two fully-fledged Islamic banks:
- Gulf African Bank – licensed in 2007 as Kenya’s first Islamic bank.
- Dubai Islamic Bank Kenya – licensed in 2017 and part of the world’s largest Islamic banking
group. - Premier Bank(Formerly First Community Bank).
They operate under strict Sharia supervision, offering sale, lease and partnership-based products including but not limited to Murabaha, Ijara and Mudaraba .
To meet growing demand, several conventional banks now offer Islamic “windows” — specialized
divisions providing Sharia compliant services. These include:
Absa Bank Kenya – La Riba Banking
KCB Bank – Sahl Banking
National Bank of Kenya – Amana Banking
Standard Chartered – Saadiq Banking (regional initiative)
These options allow clients to bank ethically while benefiting from the reach and reliability of established financial institutions.
Islamic banking blends faith with finance, offering an ethical path to wealth creation and financial inclusion. It is a model that discourages exploitation, encourages trade, and aligns business with moral responsibility. Islamic banking is not just about religious alignment, it offers ethical alternatives, greater inclusivity, and financial options for many who feel underserved.
By Swaleh K. Yusuf (Advocate of the High Court and Islamic Finance Consultant)
