By Tego Wolasa, Absa Bank Kenya Head of Islamic Banking, March 18, 2026
As we observe the holy month of Ramadan, it is a fitting time to reflect on how our daily financial choices are rooted within your deeper values. Beyond religious observance, Islamic Banking offers a unique, values-based approach to finance that promotes inclusion and growth. Whether you are looking for Shari’ah compliant options or simply curious about ethical banking, here are insights into Islamic banking and how it supports financial inclusion.
1. What is Islamic Banking and how is it different from conventional banking?
Islamic Banking is a banking system that conforms to tenets of Shari’ah. Money is not treated as a commodity, instead profit is earned through real economic activity such as buying and selling goods, not through interest. For example, if a customer approaches the bank is seeking a loan from Kes. 100,000, we first inquire about the intended purpose. If the customer says he wants a refrigerator, the bank will purchase it and sell it to him at a profit. This process eliminates interest while facilitating real trade.
2. What are the basic principles of Islamic banking?
• Prohibition of Interest (Riba): Charging or paying interest is strictly forbidden in Islamic finance. Instead, profit must be generated through legitimate trade and investment activities.
• Risk Sharing and Profit-Loss Sharing: Financial transactions are structured so that risk and reward are shared between parties. Common contracts such as Mudarabah (profit-sharing) and Musharakah (joint venture) embody this principle.
• Asset-Backed Financing: All financial transactions must be backed by tangible assets or services, preventing speculation and ensuring real economic activity.
• Ethical Investment: Investments should avoid businesses involved in activities considered harmful or unethical under Islam, such as alcohol, gambling, pork products, and arms manufacturing.
3. Why is interest (Riba) such a significant issue in Islam?
Riba is considered unethical because it can lead to exploitation, creates burdensome debt traps and corrupts both individual morality and societal cohesion. By removing Riba, Islamic banking focuses on fairness, justice and mercy in financial dealings and promotes societal cohesion.
4. Does interest / Riba relate only to consumption loans, or apply to commercial
loans as well?
The no-interest policy applies to paying for both personal and commercial facilities. It also applies to earnings from deposits.
5. Is Islamic banking only for Muslims?
A common misconception is that these services are only for Muslims. In reality, Islamic banking is available to anyone who prefers ethical, transparent, and values-based financial services.
6. How does Islamic banking generate profit?
There are various Shariah-compliant methods to generate income such as Murabaha and Musharakah, adhering to ethical and religious principles. This simply means that the bank purchases goods on behalf of a customer and sells them at a clearly disclosed profit margin, replacing interest with fair, transparent trade-based profit.
7. Are Islamic banking products limited compared to conventional banking?
Every product that is there in banking has been Islamised and customised to customer needs. Absa Bank has a rich history of pioneering Islamic Banking in Kenya, being the first bank to introduce a Shari’ah-compliant product 20 years ago. Through the Absa La Riba Account, we offer a comprehensive suite of Shariah-compliant financial solutions including a first-of-its-kind mobile lending platform, La Riba Timiza, to women’s accounts, Sultanah, and credit cards. Our innovations are rooted in the values of our customers because we want them to bank with integrity, equity, and empathy without compromising their values.
8. If Islamic banks do not invest in interest-based activities, then how do they generate profit to pay to their customers?
First, if we remove the deposit taking part, then Islamic banking is not even banking. It becomes a normal trade/business. We are prohibited from selling money but allowed to sell goods and services. If a client walks to the bank for a loan of Kes. 1 million, instead of just giving him the million, we finance his needs. If it was for instance purchasing land, we could either buy the land and sell to the client for a profit or co-own the land and sell our share of the land to the customer at a profit in piecemeal.
9. Does the prohibition of Riba apply equally to the loans obtained from or extended to Muslims as well as non-Muslims?
The prohibition is product specific and not client specific. The prohibition applies to everyone consuming the product. Even if it’s a sovereign entity so long as they come for the Islamic products.
10. Why is it important for Shari’ah compliance in Islamic banking? Financial Inclusion: Kenya has an estimated 6.5 million Muslims. Shari’ah-compliant products ensure that this significant segment of the population is not excluded from financial services.
Reputational Integrity: Adhering to Shari’ah principles helps Islamic banks maintain their credibility and avoid reputational risks, especially among their core clientele.
Customer Trust and Growth: When customers are confident in a bank’s Shari’ah compliance, they are more likely to engage with additional services, contributing to customer loyalty and business growth.
ESG Alignment: Islamic banking aligns with Environmental, Social, and Governance (ESG) principles. Shari’ah compliance falls under the ‘Social’ pillar, emphasizing ethical, transparent, and inclusive practices.
11. What is the regulation around Islamic Banking?
Islamic banking operates under the supervision of Shariah boards made up of qualified scholars who review and certify products and services to ensure ongoing compliance with Islamic law. Islamic banks are licensed, regulated, and supervised by the Central Bank of Kenya. Kenya formally introduced Islamic finance with the amendment of the Banking Act and the CBK Act in 2009, the two main legal frameworks that regulate banking in Kenya. This made Kenya the pioneer of Islamic banking in East & Central Africa.
