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The PTA Bank has joined a group of prominent investors in the establishment of a new commercial bank in Kenya. Gulf African Banking Limited (GAB) will be the first Islamic bank in Kenya. The proposed bank seeks to operate as a commercial bank functioning on the basis of Islamic principles, providing banking facilities and services to the entire population of East Africa, starting with Kenya and later move on to other countries in the region. The bank is expected to launch its operations in Nairobi and Mombasa in the second quarter of 2007 and will expand to a 15 branch network in a span of 5 years covering major East African cities. GAB envisages expansion into Tanzania and Uganda within 2 years of its starting operations in Kenya. The Bank will serve both Muslim and non-Muslim customers.
The signing ceremony of the Memorandum of Understanding (MOU) for the Gulf African Banking limited was marked with pomp and colour at Norfolk Hotel in Nairobi on January 31 2007. Business captains, executives of various organizations and Government attended the ceremony and the guest of honour was the Minister of Finance Hon Amos Kimunya. At the function, the shareholders namely; PTA Bank, Istithmar PJSC, Bankmuscat International BSC, Sheikh Abdullah Mohammed Abdulaziz Alromaizan, Muscat Overseas CO LLC and GulfCAP FZC signed the MOU undertaking to establish a sharia compliant bank in Kenya and later to other countries in the region. Senior staff members led by the President, Dr. Michael Gondwe, represented the Bank at the function.
Islamic banking as an industry has seen dramatic growth in acceptability and hence market size in various countries across the world. It is estimated that assets in the Islamic banking industry total in excess of USD 230 billion with growth rate averaging 15% over the last decade. Islamic banking is becoming a viable and attractive alternative to conventional banking for the following reasons:
- Islamic lending is a fixed profit lending which shields borrowers in times of rising interest rates;
- In adverse circumstances, where conventional banks levy large penalties and penal interest on default by borrowers, Islamic banks work in partnership with the borrowers to realize payment for loans;
- Depositors in Islamic Banks have a potential upside to returns on their deposits in case the underlying assets perform well because the banks share profits with depositors;
- Islamic Banks have, in most countries, maintained a better asset quality than conventional banks; and
- The process of Risk Assessment in Islamic banks is the same as that in conventional banks.
The Board of Directors of PTA Bank approved the equity investment into Gulf African Banking Limited at its meeting held in December 2006 in Mombassa. The Bank considers this investment to be of strategic importance as it continues to align itself with key players in the economic development of the sub region.