Bank of Uganda (BOU) has finalised the Islamic banking regulations following the amendment of the financial institutions act.
The new form of banking is expected to lead to increased investment in Uganda’s financial sector from numerous Islamic Banks that provide commercial services free from interest (Riba in Arabic), compliant with the religious tenets of Islam.
Islamic Banking is a non interest system for financing projects that rely on the viability of the project and less about collateral, facilitating direct trade finance and equity joint venture partnership. The bank is a partner to the corporation or entrepreneur and they share profits and losses.
“The good news is that the Financial Institutions (Islamic Banking) Regulations, 2018 are now in place. These regulations permit the BOU to issue a license for operating Islamic Banking Business in Uganda, either as a fully-fledged Islamic Financial Institution or to open an Islamic banking window alongside the conventional banking business,” Dr. Louis Kasekende, the deputy governor Bank of Uganda said at an Eid-El-Fitri Celebration for the Central Banks Muslim community.
“The rather not so good news is that BOU is yet to receive any formal application for a license to open up an Islamic banking business, although there have been expressions of interest by various local and international entities,” he added.
Kasekende noted that the capital requirements for Islamic Financial Institutions are the same as those of the conventional Financial Institutions and that the conduct of Islamic banks is subject to the same rules as the regular banks.
Thirdly, he pointed out that the Board of Directors of each licensed financial institution are required to set up a Shariáh Advisory Board, comprising at least three members to be vetted by BOU, and their cardinal role is to ensure compliance with Shariáh rules.
Observers have raised concern regarding elements of the prudential guidelines, such as the relationship between a licensed Islamic financial institution and the central bank as a lender of last resort.
In 2016, the Islamic University of Uganda launched a course in Islamic banking to close an envisaged human resource gap.