Bank of Uganda (BoU) has unveiled its plans to embark on the licensing process for financial institutions eager to offer Islamic banking products. Dr. Adam Mugume, the Director for Research at Bank of Uganda, shared insights in an interview, stating that certain financial institutions had been awaiting the implementation of legislation before proceeding.
Dr. Mugume explained, “We are poised to grant licenses to financial institutions interested in providing Islamic banking products. Several were awaiting the enactment of relevant laws.” With these laws now in place, he believes this development will open up Islamic financial solutions to the public.
Islamic Banking introduces a collaborative approach that ensures both financial institutions and borrowers share responsibility for risks and profits alike.
In recent news, Speaker of Parliament Anita Among disclosed that President Museveni had officially signed the Financial Institutions (Amendment) Act, 2023. This landmark decision effectively paved the way for the introduction of Islamic Banking in Uganda.
Back in 2016, the government introduced key amendments to the Financial Institutions Act, introducing innovative concepts to the financial sector, including Agent Banking, Bancassurance, and Islamic Banking. However, certain obstacles have persisted, causing delays in the implementation of Islamic Banking.
Legal challenges, encompassing aspects like interest definitions, insurance terms, and loan reassurance, have now been successfully addressed, eliminating roadblocks and ushering in the era of Islamic Banking within the financial sector.
Dr. Sulaiman Lujja, a respected banker and Shari’a scholar, commended the President’s approval as a “well-deserved and long overdue” step. He emphasized that while the concept of profit and loss sharing hinges on trust, prioritizing debt-based products initially would mitigate potential risks. Establishing trust and transparency is crucial before transitioning to more complex profit and loss-sharing arrangements.
Interest rates remain a significant challenge, with some banks imposing rates as high as 30 percent.
