Islamic banks have grown to account for nearly 1 percent of gross assets in the Kenyan banking sector since they first opened their doors early last year, the central bank said on Thursday.
The Islamic finance industry is seeking to grow outside its main centers in the Gulf Arab region and South East Asia to tap into Muslim minorities in Western and African countries.
Its banks cater for customers who want to follow Islamic rules on avoiding direct payment or earning of interest, which are viewed as usury under Islamic law.
Central Bank Governor Njuguna Ndung'u told Reuters the two Islamic banks operating in Kenya -- Gulf African and First Community -- had a loan portfolio of 4.9 billion shillings ($64.3 million), deposits totaling 7.5 billion shillings and 27,270 deposit accounts.
"Their performance in the short period of their existence is commendable," Ndung'u said, adding their combined market share of the banking sector in terms of gross assets was 0.8 percent.
"These indicators point to the tremendous potential of this market niche which has been previously untapped."
Muslims are estimated to make up at least 15 percent of Kenya's population of 36 million.
Najmul Hassan, the chief executive of Gulf African Bank, said it had opened 12 branches in east Africa's biggest economy and had participated in a 1 billion shilling sukuk issue (sharia-compliant bond) from the government.
The sukuk issue
The sukuk issue was a tranche of the government's first infrastructure bond that raised a total 18.5 billion shillings in February this year.
Hassan said the Kenyan sukuk issue was split between Gulf African and First Community Bank, and that his bank would be interested in investing in more government sukuk issues.
But the financial crisis had hurt inflows from the Middle East, and the Islamic banks had used the slowdown to consolidate and study the local market in preparation for when the global economy turned.
"On that angle we have probably not done too well. Because of the global financial crisis, people were not willing to look at cross-border investments," he said.
Hassan said he expected Gulf African to post its first profit in the final three months of this year, aided by a good take-up rate of asset financing products by non-Muslims.
"In the next quarter we should be making a profit," he said.
United Arab Emirates' investment bank Istithmar and Bahrain-based Bank Muscat International own stakes in the Kenyan bank, according to its Web site.
First Community's Chief Executive Nathif Adam told Reuters in May the bank's launch had exceeded expectations and he hoped to boost its branch network to 16 by the end of the year.
Adam also said the bank hoped to break even in its second year and was casting its eye towards neighboring Uganda and Tanzania.