What happened

Boubyan Bank announced that it has obtained preliminary approval from the Central Bank of Kenya (CBK) and the Capital Markets Authority (CMA) to issue a perpetual Additional Tier‑1 (AT1) sukuk. The approval, granted in early September 2026, allows the bank to move forward with structuring the sukuk, although the final prospectus and size of the issue have not yet been disclosed. This marks the first time a Gulf‑based Islamic bank has sought Kenyan regulator sign‑off for a perpetual AT1 sukuk, a hybrid instrument that blends debt‑like cash flows with equity‑like loss‑absorption features. The bank said it will now engage with potential investors and advisers to finalise the terms before a formal launch later in the year.

Context and background

Boubyan Bank, headquartered in Kuwait, has been expanding its footprint across Africa through subsidiaries and correspondent banking relationships. In Kenya, the bank operates a representative office that supports trade finance, treasury services and Islamic financing solutions for corporate clients. The move to issue a perpetual AT1 sukuk aligns with the bank’s strategy to raise long‑term capital that complies with Shariah principles while meeting Basel III capital requirements.

The Central Bank of Kenya and the Capital Markets Authority jointly oversee the issuance of securities in the country. Their preliminary approval indicates that the proposed sukuk meets initial prudential and market‑conduct standards, but the regulators will still review the detailed prospectus, pricing, and risk‑mitigation measures before granting full clearance. Historically, the CBK has been cautious with hybrid capital instruments, requiring clear loss‑absorption triggers and transparent disclosure to protect investors and maintain financial stability.

AT1 instruments, also known as contingent convertible bonds, were introduced globally after the 2008 financial crisis to provide banks with an additional layer of capital that can be written down or converted into equity during periods of stress. In the Islamic finance world, the sukuk version replaces conventional interest with profit‑sharing or lease‑based cash flows, preserving compliance with Shariah law. Perpetual AT1 sukuk have no fixed maturity date, meaning they can remain on the issuer’s balance sheet indefinitely unless called by the issuer or converted under predefined conditions.

Kenya’s sukuk market is still nascent but growing. Since 2019, the CMA has approved several sukuk issuances by both local and foreign issuers, primarily for infrastructure projects and corporate financing. The market has attracted investors ranging from pension funds to high‑net‑worth individuals seeking halal‑compliant returns. Boubyan Bank’s entry with a perpetual AT1 sukuk could diversify the product mix, offering investors a higher‑yield, loss‑absorbing instrument that also contributes to the bank’s capital adequacy.

While the exact size of the upcoming sukuk remains undisclosed, comparable AT1 sukuk in the region have ranged between Sh500 million and Sh2 billion. The bank’s decision to pursue a perpetual structure suggests confidence in its ability to service the cash‑flow obligations over the long term, and it may also reflect an appetite among Kenyan investors for higher‑yield, Shariah‑compliant assets. The bank has indicated that proceeds will be used to expand its Kenyan operations, support trade financing, and fund new Islamic finance products.

Internationally, the issuance follows a broader trend of Gulf banks seeking to tap African capital markets. Recent years have seen increased cross‑border financing, with institutions from the UAE, Saudi Arabia and Qatar launching bonds, sukuk and syndicated loans in Kenya and neighbouring economies. This reflects both the search for diversified funding sources by Gulf banks and the growing appetite of African investors for Islamic financial products.

Compared with what is normal

Perpetual AT1 sukuk are relatively rare in Kenya. Most sukuk issued locally have fixed tenors ranging from three to ten years, with clear redemption dates. The typical sukuk size in the Kenyan market averages around Sh1 billion, and issuers often include a call option after five years. By contrast, Boubyan Bank’s perpetual structure removes a fixed redemption horizon, placing it outside the usual Kenyan sukuk template.

• Traditional Kenyan sukuk: fixed maturity (3‑10 years), call option after 5 years, average size Sh1 billion.
• Perpetual AT1 sukuk: no set maturity, higher yield to compensate for indefinite term, capital‑absorbing features.
• Market reaction: investors may demand a premium of 150‑200 basis points over conventional sukuk yields to account for the added risk.

Why it matters

For Kenyan SMEs and corporates, the introduction of a perpetual AT1 sukuk expands the pool of capital that can be accessed indirectly. A larger, more diversified sukuk market can lower borrowing costs for companies that issue their own sukuk, as competition among investors drives yields down. Moreover, the hybrid nature of AT1 instruments can improve the overall resilience of the banking sector by providing an extra buffer that can absorb losses without triggering a full‑blown crisis.

Investors, particularly those managing pension funds and endowments that require Shariah compliance, gain a new asset class that offers higher yields while still adhering to Islamic principles. The perpetual feature means that, if the bank remains financially sound, investors could enjoy a steady stream of profit‑sharing payments indefinitely, enhancing long‑term income stability. However, the loss‑absorption clause also means that in a severe stress scenario, payments could be suspended or the instrument could be written down, underscoring the need for careful risk assessment.

Regulators benefit from the precedent set by this approval. By reviewing and eventually clearing a perpetual AT1 sukuk, the CBK and CMA demonstrate flexibility in accommodating innovative financing structures, which could attract further foreign capital and deepen Kenya’s capital markets. This aligns with Kenya’s Vision 2030 goal of positioning Nairobi as a regional financial hub.

Practical steps

• Review your investment policy: ensure that perpetual AT1 sukuk fit within your risk tolerance and liquidity requirements before allocating capital.
• Consult a Shariah advisor: confirm that the profit‑sharing mechanism of the sukuk complies with your organization’s religious guidelines.
• Monitor regulator updates: keep an eye on the CBK and CMA releases for the final prospectus, pricing details and any changes to the loss‑absorption triggers.
• Engage with a financial adviser: a professional can help model the cash‑flow impact of the sukuk on your portfolio and advise on appropriate exposure levels.

Financial Management & Analysis services at Beavoren Ventures can help you assess how a perpetual AT1 sukuk fits into your capital structure, run scenario analyses, and ensure compliance with both Kenyan regulations and Shariah requirements.

Book a consultation with Beavoren Ventures today and let us handle your compliance, books, and advisory in one place.

Disclaimer: This article is informational and does not constitute formal tax, audit or legal advice. For guidance specific to your circumstances, please contact Beavoren Ventures.