Islamic Banking introduced in Uganda
Parliament on 7th passed the Financial Institutions amendment Bill, the law among others things introduce Islamic banking that is consistent with Islamic Shari’ah (law). The parliamentary clearance is, however, subject to the establishment of a Central Shari’ah Advisory Board in the Central Bank to regulate banks providing Islamic banking products.
This was a major worry for some Members of Parliament who demanded that Parliament first of all introduces another Act on the Shari’ah Law before the bill could be passed. The object of the Bill is to amend the Financial Institutions Act, 2004. The law will provide for Islamic Banking, provide for bancassurance (insurance provided by banks), Agent Banking, special access to the credit reference bureau by other accredited credit providers and service providers.
The Financial institutions Act were enacted to address the crisis in banking sector of the late 1990s that resulted into the closure of several commercial banks.
The committee report highlights that the provision of Islamic banking and Financial products by banks is growing rapidly in Many countries, the committee further notes that currently, 11 out of 22 licensed conventional and Commercial banks in Uganda have expressed interest in Providing Islamic banking products to their customers.
In a recommendation to the Parliament, the committee on Finance proposed that the proposal to introduce Islamic banking and its products be adopted subject to the establishment of a Central Shariah Advisory Board in the Central Bank providing .
Never the less, many stakeholders are excited about the possibility of Islamic banking and its implications and its advantages for example,
- It assists in financial inclusion,
The conventional banking system is based on paying interest at a pre-determined rate on deposits of money. As both payment and receipt of interest is prohibited by the Shari
ah law, Muslims generally abstain from banking. Through Islamic banking, financialinclusion can be promoted and a larger pool of saving s can be brought into the economy.
- Reducing the impact of harmful products and practices
Shariah principles forbid any investment that would support industries or activities that are considered harmful to the people and the society in general. This includes usury, speculation and gambling, irrespective of whether these are legal or not in a given territory.
- Islamic banking also promotes the principle of financial justice
Financial justice is a basic requirement for the functioning of Islamic finance products. Western or conventional financing looks forward to profit through interest payments and makes the beneficiary completely liable for any risk.
Contrary to this, Islamic financing paves way for the sharing of net profit/loss and the risk involved in a proportional manner between the lender and the beneficiary. Therefore, if a financier is expecting a claim on profits of a project, it is necessary that he/she should also carry a proportional share of the loss of that project.
- Encouraging stability in investments
In Islamic finance, investments are approached with a slower, insightful decision-making process, when compared to conventional finance. The Islamic banking hype is here, let us wait for the results.