Kenya risks losing momentum in Islamic finance unless it closes regulatory gaps, improves liquidity options and develops more specialised professionals, former Deputy Chief Kadhi Dr Sheikh Rashid Ali Omar has said.
Sheikh Rashid said the country’s financial system has not fully adjusted to the needs of Sharia-compliant institutions, leaving them to operate largely under rules created for conventional banking.
He made the remarks on Thursday during the Islamic Finance Forum and Dialogue Conference 2026 held at the Radisson Blu Arboretum in Nairobi, where he pushed for changes that would give Islamic finance a stronger legal and regulatory foundation.
“Now in Kenya, there is a hiccup that we must address. The first one is that there is no specific financial law on Islamic finance, but all under banking and the CBK Act,” he stated.
He said the absence of a specific law creates difficulties for institutions whose financial activities are guided by Sharia principles, including the prohibition of interest and the use of asset-backed, profit-sharing and risk-sharing arrangements.
Kenya’s National Financial Inclusion Strategy 2025–2028 similarly points to weaknesses in the current legal system as one of the issues affecting the wider development of Islamic banking. It lists limitations under the Banking Act, the need for possible exemptions from the Central Bank of Kenya (CBK) and inadequate numbers of professionals trained in Islamic banking.
Sheikh Rashid also questioned whether existing monetary policy tools are suitable for Islamic banks, saying they need instruments that take account of how Sharia-compliant institutions operate.
“CBK monetary tools and standards work against Islamic banking,” he said.
He further called for a national Sharia Advisory Board to provide guidance and oversight for the industry, saying its absence has made it difficult to ensure consistency in Islamic financial products.
“CBK is yet to establish national Sharia Advisory Board. Even if it establishes, it is not functional. Hence, no standardisation of products and the oversight for Muslim banking system,” he maintained.
Another concern raised at the forum was the limited choice of investments available to Islamic banks when they have excess funds. Sheikh Rashid said the lack of suitable Sharia-compliant instruments creates problems when institutions need to manage their liquidity.
“The issue of liquidity is also another problem. Liquidity management begets operational challenge for Sharia banks. So banks cannot invest excessive liquidity for government securities,” he said.
The CBK uses tools such as open-market operations, repurchase agreements and term auction deposits to influence liquidity within the banking system. Sheikh Rashid said Islamic banking requires options that are compatible with its operating principles.
Kenya has already taken steps to broaden the Islamic finance market. According to the National Financial Inclusion Strategy, the country issued its first Sukuk in July 2024. The Sh3 billion Linzi Sukuk was listed on the Nairobi Securities Exchange and was intended to finance 3,069 affordable housing units.
The CBK has also participated in international Islamic finance development efforts, having been an associate member of the Islamic Financial Services Board since 2019. The board works on standards covering areas such as Islamic banking, Islamic capital markets and takaful.
Despite these developments, Sheikh Rashid said the sector continues to face a shortage of people with the required combination of Islamic finance knowledge and banking skills.
“Lack of human capital. The people who are supposed to work now are banking in Islam talent, where the capacity and the manpower is low in this sector,” he said.
He urged banks, regulators and other players in the industry to ensure that Sharia-compliant finance remains true to its principles instead of simply taking conventional products and changing their labels.
For Sheikh Rashid, fairness should remain at the centre of financial transactions, with products expected to consider the interests and economic value of all parties involved.
“Is the transaction justifiable and just, brings justice to all? That is the first thing that we are supposed to handle. Does it balance the economic value of both parties? If it is one-sided, then Islam will not inculcate. So it is a balance, justifiable,” he said.
He said Kenya would need stronger regulation, suitable liquidity products, skilled personnel and effective Sharia oversight to strengthen the sector and improve its prospects of becoming a regional Islamic finance hub.
The forum was organised by Radio Generation under the theme “Igniting Growth in Shariah Compliant Finance”. It brought together Islamic banking practitioners, Shariah scholars, financial institutions, investors, small and medium-sized enterprises, regulators and other industry stakeholders to discuss the sector’s challenges and opportunities.
Sheikh Rashid said the increasing attention being given to Sharia-compliant finance gives Kenya an opportunity to develop a financial system that supports economic activity while also promoting fairness, shared risk and wider social benefits.