Kenya is eyeing the Gulf region to boost its bonds market, the Capital Markets Authority (CMA) has said.

The oil rich region with its mostly Muslim population has been locked out of the East African regional bonds markets because the products are not Sharia-compliant, said Paul Muthaura, CMA’s acting chief executive officer.

“We need a segment that allows Sharia-compliant investors to invest in the real economy through bonds with no interest. The Gulf Co-operation Council (GCC )  is a target market,” said Mr Muthaura, adding that this would boost liquidity in the bonds market liquidity.

Sharia banking refers to offering financial services that are in line with Sharia (the religious law of Islam.) The law prohibits the fixed or floating payment or acceptance of specific interest or fees (known as riba, or usury) on loans of money — a practice seen with all conventional banks and bonds.

CMA said it had identified Sukuk, a product that is Shariah compliant. The product, along with Islamic Collective Investment Schemes, is key to building critical mass in the industry. CMA, in its Strategic Plan 2013-2017, has committed to having a policy framework in place by June 2014.

The window is hoped to help accelerate  development of a significant Islamic capital markets industry thereby widening the range of available Shariah compliant products and services.

“The Authority will also explore mechanisms in which the government of Kenya can integrate the issuance of Sukuk as a component in the debt management strategy before we move on to full issuance,” said the CMA.

The potential of this market can be well explained by the strength of GCC economies and the growth of the Sharia-Compliant Banks and conventional markets opening segments within their operations to cater for the Muslim community across the country.  

GCC members include Bahrain, Kuwait, The Sultanate of Oman, Qatar, Saudi Arabia and the United Arab Emirates.