Uganda Development Bank and the Association of National Development Finance Institutions in Member Countries of the Islamic Development Bank last week held a two day workshop aimed at enlightening commercial bank, bank regulators, legislators and potential users of Islamic finance about the principles of Islamic banking.
“Uganda has recently passed legislation in order to develop Islamic Finance and as a result creating a series of products that would benefit the Ugandan populace,” said Patricia Ojangole the CEO of Uganda Development Bank.
Islamic banking is banking or banking activity that is consistent with the principles of sharia (Islamic law) and its practical application through the development of Islamic economics. As such, a more correct term for Islamic banking is sharia-compliant finance.
Justine Bagyenda, the Director Supervision at Bank of Uganda said they are finalizing regulations to have Islamic Banking roll out throughout the country with commercial banks creating windows for Islamic banking.
Sharia prohibits acceptance of specific interest or fees for loans of money (known as riba, or usury), whether the payment is fixed or floating.
Investment in businesses that provide goods or services considered contrary to Islamic principles (e.g. pork or alcohol) is also haraam ("sinful and prohibited").
The Islamic banking principles add that although these prohibitions have been applied historically in varying degrees in Muslim countries/communities to prevent un-Islamic practices, only in the late 20th century were a number of Islamic banks formed to apply these principles to private or semi-private commercial institutions within the Muslim community.
As of 2014, sharia-compliant financial institutions represented approximately 1% of total world assets, and by 2009, there were over 300 banks and 250 mutual funds around the world complying with Islamic principles and as of 2014 total assets of around $2 trillion were sharia-compliant.
According to Ernst & Young, although Islamic banking still makes up only a fraction of the banking assets of Muslims, it has been growing faster than banking assets as a whole, growing at an annual rate of 17.6% between 2009 and 2013, and is projected to grow by an average of 19.7% a year to 2018.
Ojangole said the introduction of Islamic Banking will spur an increase in savings and business financing emanating from more people accessing the formal financial systems that some have avoided due to their incompatibility with non-negotiable religious dicta.
Nuri Birtek, the ADFIMI Secretary General said Islamic Banking model comes in addition to the nature of Shar’ah complaint finance models that focus on the principles of investment in real assets and risk sharing.
“It has thus contributed to the spread of real asset based finance principles in many jurisdictions and is regarded as an ideal option for the financing of infrastructure projects.
“Islamic banking will also allow acceptable savings products that reward risk better through a share of project profits and thus make more finance available for projects with better risk price characteristics,” said Birtek.
Ojangole said Islamic Banking will trigger new investments that will attract jobs, creating foreign direct investments.
“Foreign capital will ease large and growing current account deficit induced inflationary volatile shilling depreciation pressure through the capital account and directly expand financing. This will spur growth of Uganda’s exports by investing long term and facilitating export trade,” said Ojangole.
By PAUL TENTENA, Thursday, June 01st, 2017
By PAUL TENTENA, Thursday, June 01st, 2017
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