Bank of Uganda ready to license Islamic banking products
Bank of Uganda says amendments in the law now makes it possible to license financial institutions offering Islamic Banking. Photo / File
What you need to know:
- Bank of Uganda says there had been a few financial institutions that had been waiting for the law to commence financial institutions
Bank of Uganda (BoU) has said it will now begin licensing financial institutions that are seeking to offer Islamic banking products.
Speaking in an interview, Dr Adam Mugume, the Bank of Uganda director for research, said there were a few financial institutions that had been waiting for the law to commence financial institutions.
“We will be licensing financial institutions that want to offer Islamic banking products. A few were awaiting enactment of the law,” he said last week, noting that now that the law has been signed, “I believe this will open up the Islamic financing of business to the public”.
Islamic Banking, he said, offers a shared responsibility that ensures that risks and profits are shared between a financial institution and the borrower.
Last week Speaker of Parliament Anita Among, released a document, in which she said President Museveni had, among others, signed the Financial Institutions (Amendment) Act, 2023, which effectively authorises Islamic Banking in Uganda.
In 2016, government amended the Financial Institutions Act, where it introduced new financial sector innovations, among which included Agent Banking, Baccasurance and Islamic Banking.
However, a number of roadblocks had remained, thus creating delays in implementation of Islamic Banking.
The legal roadblocks, which included definition of interest, insurance and reassurance of loans, have now been cleared thus opening up the financial sector to Islamic Banking.
Dr Sulaiman Lujja, a seasoned banker and Shari’a scholar (Islamic Law), described the President’s assent as “well deserved and long overdue”.
“The aspect of profit and loss sharing depends on trust, but for now, I suggest debt based products should be the priority so that in case of anything, you don’t have your fingers burnt completely. And once trust levels are up and people don’t think this is free money, then sharing of loss and profits can take shape,” he said.
Interest rates remain highly prohibitive, with some banks charging as high as 30 percent.
