Chief Executive Officer,
Islamic Relief -Kenya
Nairobi
Attn: Abdalla Rashid
Dear Sir,
RE: Collaboration between First Community Bank Ltd and Islamic relief Kenya
First, I would like to take this opportunity on behalf of the Board of Directors of First Community Bank Ltd. (FCB) to thank you for the interest to collaborate and partner with us in provision of microfinance services in a sharia compliant way. We are glad to submit our proposal for your kind consideration to offer this services to microenterprises and pastoralist Production Groups (PPGS) established by IR- Kenya in Northern Kenya. This is also an opportunity or us to enrich our product offering.
In terms of branch network and geographical coverage, kindly note that we are on course to achieve our ambitious expansion strategy of opening in the predominantly Muslim Northern Frontier Districts and coastal areas which are currently either under-banked or not banked at all. We closed our third year of operation with seventeen branches from Malindi, Mombasa, Garissa, Masalani, Habaswein, Wajir, Moyale, Nairobi, Nakuru to Kisumu. Our short-term strategy involves expansion to key rural towns such Mandera, Modagashe, and Isiolo among others.
In terms of our product perspectives, kindly note that we have created within the Bank a dedicated Micro-financing Unit specializing in Micro-Finance activities relevant to women and youth - oriented activities through groups. The unit has developed tailored liability accounts and asset products suitable for financing individuals, and groups within the arid and semi arid regions who happen to be pastoralists.
FCB represents the best vehicle for facilitating Sharia-Complaint financing to the largely unbanked and under-banked Muslim Community. FCB is well placed to provide an acceptable platform through the provision of tailor-made products to all potential beneficiaries who maybe interested in accessing guaranteed funds in a Sharia-Compliant manner. Our participation with the pastoral communities is a deeply rooted commitment as part of our service to the society.
We have taken note of the funding parameters of your institution as it relates to Shariah-savvy beneficiaries in the northern region of the country. Nevertheless, we seek your indulgence and accommodation on the funding leverage of 100% from Islamic Relief Kenya owing to our new status in the market. Despite not having operated for the more than five years, we are a well regulated bank by CBK in accordance to the Prudential Guidelines, and have a comfortable capital base of one (1) billion. We have also put in place a comprehensive Corporate Governance and Management structure to ensure posterity of our operations.
As an indigenous Bank which is promoted and managed by Kenyans, FCB shares in the vision & aspirations of, and supports Kenyans while positioning itself as a financial powerhouse in the region. We seek to be your partner in achieving your Vision and Mission of promoting the under bankled muslim community access sharia compliant microfinance products thus developing a vibrant sustainable livelihood/economy in the Northern part of the country. We hereby apply for consideration to be the credit fund managers for the Program fund . In this regard, we would like to confirm to you that our bank is well placed and committed to expand your initiative. Please, feel free to contact the undersigned for any further clarifications.
Yours sincerely,
First Community Bank Limited
______
Charles Kibugi
Microfinance Manager
FCB Profile
First Community Bank is the first Bank approved by the Central Bank of Kenya (CBK) under Cap 488 of the Banking Act to operate as a full-fledged Sharia Compliant banking institution. The bank received its formal approval from the Central Bank of Kenya (CBK) on May 29th 2007 thereby opening the door for Sharia Compliant banking not only in Kenya but indeed in the entire East and Central African region.
The bank is owned by a diverse base of community businessmen and professionals from Kenya and Tanzania. The bank commenced official operations on 1st June 2008.
The bank has a dedicated team of employees who are well trained to deliver the highest levels of service to its clientele. As a committed Kenyan Bank, FCB motive is to take its alternative form of Banking to as many places as possible within the country. In this regard, we have planned for 17 branches to be fully operational by the end of our second year of business. Regionally, we have put into place mid-term plans to establish operations in other East African financial centers where we believe there is sufficient demand for Sharia Compliant financial services.
As a Pioneer Sharia Compliant banking institution, FCB, in addition to its core banking business, is also in the final stages of bringing to Kenya a number of other innovative Sharia Compliant products such as Islamic Insurance (Takaful), Islamic Bonds (Sukuk) and Sharia Compliant Mutual Funds and Shares trading.
All our products and services are offered on fully Sharia Compliant basis as approved by our Sharia Advisory Board which comprises of prominent Islamic scholars both from inside and outside Kenya.
Vision, Mission, and Core Values
Our Vision
To be the preferred provider of financial services on the basis of strict Sharia compliance and in the spirit of true community banking
Our Mission
To operate as a responsible corporate citizen and foster economic growth for our customers, shareholders and the communities within which we operate by delivering innovative Sharia compliant financial solutions through an inspired team of employees.
Our Core Values
Our value proposition as an institution is a direct reflection of the core values that guides our day-to-day activities. Our core values are acronym in the word “FIRST”. Not only is this the first word of our bank’s name but the word “first” also means, for us, a journey towards a new paradigm of financial services:
1. Fairness
o We work with all our stakeholders in a fair and honest manner. We create partnerships which lead to win-win situations with all those who transact with us.
2. Innovation
o We embrace change, flexibility and continuously adapt to a rapidly evolving world. We strive to continuously perpetuate excellence and provide innovative Sharia compliant banking solutions. In response to the dynamic needs of our clientele, we look for creative, new and better ways to provide our expertise in all dimensions of business.
3. Responsibility
o We conduct our business with the highest standards of ethics, adherence to the law, and doing what is right. We exercise the highest levels of responsibility in managing the financial affairs of all our stakeholders.
4. Sharia Compliance
This is the essence of our existence and remains, for us, a commitment beyond banking. We are extremely vigilant in this regard and in view of this we have put together a most reputable Sharia Advisory Board to guide us. Also, as an additional layer of Sharia supervision, we created within the bank, an internal Sharia Audit department which is manned by employees who are very well conversant with matters of Islamic jurisprudence (fiqh Al-Muamalat).
5. Transparency
o We are committed to transparency in all our activities; transparency that encompasses candid communication with all our stakeholders to earn us the confidence and trust that we deserve.
Problem Statement
The muslim community ,especially small scale traders face ‘participatory exclusion’ in the banking sector and especially in the arid and semi arid regions due to nomadic culture and lifestyle of the community in this areas, makes it difficult to enable them meet the set borrowing/funding benchmarks of most financial institutions. These range from insufficient performance history, low threshold turn-overs, poor accounting history, drought and unfavorable climatic conditions, lack of access to the pre-requisite markets for their wares and services.
But the biggest limitation in this subject matter has been the attitude and treatment of contingent exposures by banks on SME and livestock traders. This is partially due to the inability of the client to provide timely financial information, poor mitigation strategies by the formal financial institutions and insufficient time allowance for the banks to appraise the application to facilitate a more favourable and balanced decision. Owing to the lack of sufficient information, the banks naturally assume an overly risk-averse position resulting to insistence on full or partial cash-covers for such facilities. The most accommodating will selectively accept other conventional collateral or provide minute limits of less than Ksh. 100,000 on unsecured basis. Even though these banks are seen to assist MSME’s, they play no role in enabling the muslim communities to stretch and grow by accessing financing and ready markets.
To a greater extent, such collaterals (cash covers & conventional collaterals) are not available as has been evidenced in various programs that lack of collateral is a major impediment to financial access by pastoralists’. But even where collateral can be provided, the timelines between application and disbursements (normally between 14-21 days) grossly affects traders as the livestock might have been moved to another area or not available at the time of facility disbursement.
Objectives
In summary, the key objectives of FCB’s proposition are to:
i. Overcome limitation of SME muslim community participation in accessing sharia microfinacing products and markets (hence financial & trade exclusion) due to lack of cash-covers or other conventional collaterals to secure facility.
ii. Re-invent a simpler but effective appraisal, approval and processing criteria that can match tight timelines of livestock trading/market vis a vis effects of climatic conditions
iii. Introduce a Guarantee Endowment Fund (GEF) and group guarantee mechanism to facilitate timely disbursement of the facility as in (i) above. In-cases where perfection will be necessary, the GEF can be used awaiting perfection.
iv. Increase greater participation by involving groups of traders and individuals.
v. Improve the collateral terms where we have the scheme and group guarantees.
vi. Reduce the cost financial services to be provided to the targeted group.
Definition and Description of Contingent Liabilities, Types and Classes
Organizational Offering and Product Delivery
The products will be offered by First Community Bank (FCB), a fully licensed Sharia Compliant bank, licensed to operate as a commercial bank by CBK.
Geographical Coverage
Within the first year of operations, FCB has rolled out an extensive branch network of 10 in key towns as detailed herein below:
Branch / Location / District(s)/AreaEXISTING BRANCHES
Wabera Street Branch / CBD / Nairobi
Kimathi Street Branch / CBD / Nairobi
Eastleigh Branch / Garissa Lodge,Eastleigh / Nairobi
Gen. Waruinge Branch / Eastleigh / Nairobi
Westlands Branch / Westlands / Nairobi
South C / South C / Nairobi
Digo Road Branch / CBD / Mombasa
Garissa Branch / Garissa / Garissa, Ijara, Modagashe, Habaswein, Wajir, Fafi
Malindi Branch / Malindi / Malindi, Lamu, Kilifi, Garsen
Kisumu Branch / CBD-Kisumu / Kisumu East, West, Kisumu Rural, Nyando, Siaya, Homabay,
Nakuru / Nakuru / Nakuru, Nyahururu, Molo, Mau Narok
Habaswein / Habaswein / Lagdera, Garissa, Wajir South
Wajir- / Wajir Centre / Habaswein, Buna,Elwak
Masalani / Masalani Township / Ijara, Hola, Tana river, Lamu
Moyale / Moyale Town / Kenya-Ethiopia Border, Moyale, Marsabit
Industrial Area / Nairobi- Industrial Area / Nairobi, Athi-River, Machakos
Financial Products
For the partnership with IR Kenya, the Bank has developed the following financial products in form of financing facility to cater to the specific requirements of the Micro entrepreneurs in Northern Part of the country;
Purpose:
This will be short term financing facilities for the purpose of purchasing livestock & other wares and then on selling. Support service industry oriented products.
Some of the contracts to be used include;
Mudaraba - based financing contract:
This is a trust based Financing contract, whereby FCB (the Rab ul Mal) provides capital to another party/entrepreneur (the Mudarib) in order to undertake a business/investment activity. The Bank expects to earn a certain predetermined percentage of return on each Mudaraba transaction. Maximum financing period per transaction shall be 12 months.
Murabaha- based financing contract:
It’s a Purchase and resale contract. Instead of lending out money, the bank purchases the desired commodity (for which the Financing would have been taken out) from a third party and resells it with a mark-up price to the capital user. The bank determines the mark –up profit rate and the client pays in installments the cost of the purchased item plus the profit. Maximum tenor period is 24 months.
Features of the Guarantee Facility
The facility will mainly focus on providing financial services to the Pastoral Communities. The distinct features are:
Financing amounts
Financing amounts will depend on group /individual requirements and the recommendations from credit department but not to exceed Kshs.500,000/=.
Financing term
Individual Financing transactions will not exceed tenors of up to 24 months, adjustable to meet the Financing cycle requirement.
Security
Although this is a guarantee fund, security will be sought from the group and guarantee fund to determine their ability to repay the Financing. A viable business plan might be required by the bank indicating the anticipated cash flow and plan for repayment. The bank will set its own level of set security for this purpose and will assess for viability as per the bank’s policy and procedures
Benefits to Clients· Improved financial inclusion plus increased participation by pastoral communities
· Enhanced ability to undertake multiple facilities(as a group member and as an individual)
· Low incremental collateral requirements
· Wider collateral choice (cash cover not mandatory)
· Release of cash which enhances performance ability and reduces our risk
· Quick Turn Around Time
· Convenience and peace of mind by having a reliable financial partner
Benefits to the Bank
· Business Mobilization & Concentration
· Facilitate higher transaction volumes.
· Customer retention strategy: Locking-in of clients by engaging their supply lines hence improved customer loyalty & retention
· Successful results to financing need leading to growth in assets
·
FCB Proposition to Islamic Relief
In line with the FCB objective of increasing access of financial services to everybody including the marginally unbankable, we seek FCB-Islamic Relief Kenya partnership support to facilitate the following: