IslamicFinance.de

Finance Minister Matia Kasaija has said that whereas Bank of Uganda still has challenges, it should work around the clock to quickly resolve the pending establishment of Islamic Banking. Mr Kasaija said that, as government, they had done their job to pass the law and it was now the work of the Central Bank to operationalise the Shari'a-based banking system. In 2016, government enacted the law that would introduced Islamic Banking, agent banking and bancassurance, among other products. However, whereas other products have already been established, implantation of Islamic Banking continues to be delayed.

Over the past two decades sub-Saharan Africa has made considerable economic progress, as extreme poverty levels have declined by one third; life expectancy has increased by a fifth; and real per capita income has grown by about 50 percent on average. Still sub-Saharan Africa is only half-way to meeting the Sustainable Development Goals. To achieve its goals, sub-Saharan Africa will need financing.

According to UNICEF, investing in children is the fundamental solution to end child poverty and inequality and set the foundation for sustainable and inclusive economic growth. The statement was made during the Africa-China Poverty Reduction and Development Conference at the 10th Forum on China-Africa Cooperation (FOCAC). The 10th FOCAC Africa-China Poverty Reduction and Development Conference, co-hosted by China’s State Council Leading Group Office of Poverty Alleviation and Development (LGOP) and the Uganda Ministry of Agriculture, Animal Industry and Fisheries, had the theme of "Partnership for Transformation in Africa". Delegates expressed the urgent need to invest in social policies and infrastructures which combat child poverty in Africa, where around three out of every four children are affected by multi-dimensional poverty.

According to the Minister of Finance, Mr Matia Kasaija, no amount of opposition will stop the operationalisation of Islamic Banking in Uganda because it has already kicked off. He is the one who signed the instruments operationalising it and he said Ugandans should stop associating it with terrorism and Islamic fundamentalism. During their annual general meeting last Saturday the Uganda Joint Christian Council (UJCC) resolved to lobby against the implementation of Islamic Banking. The Christian bishops speculated that Muslims could be using Islamic Banking as a bait to lure Christians into Islam. This drew a backlash from Muslim leaders, who warned the bishops to refrain from mobilising against Islamic Banking and advised them to seek knowledge from Ministry of Finance or Bank of Uganda rather than undermining it through the media.

Banks in Uganda have petitioned the central bank to review key regulations in Islamic banking to make it less costly for the banks. According to Patrick Mweheire, the chairman of Uganda Bankers' Association (UBA), the current regulation requires that a commercial bank that applies to offer Islamic banking must have its own sharia panel comprising nine muftis. Mweheire suggested that UBA should instead have one panel which can be used by all its members when advancing Islamic banking products to the public. UBA CEO Wilbrod Owor said there were a lot of issues in the sector that affect them and need their attention: money laundering, terrorism finance, and digital technologies etc.

Countries in East Africa are increasingly joining the Islamic finance industry as their Muslim population grows and demand for Shariah-compliant banking and finance rises. In Ethiopia the central bank is planning to develop Islamic finance in order to improve financial inclusion, while Somalia’s central bank has given licences to six Islamic Banks and two takaful companies. Both Tanzania and Kenya have recognised the potential of Islamic finance, in Rwanda Islamic finance made its debut in 2016 with an Islamic microfinance Institution. Only Burundi, South Sudan and Eritrea don’t have ambitions to set up Islamic banks. The latest regional entrant in the Islamic finance sector is Uganda. Finance minister Patrick Ocailap said that a framework for the implementation of Islamic banking in the country has been developed and will be operational by October 2018.

In #Uganda more than half of the 24 licensed conventional banks have expressed interest in providing Islamic banking products. The latest to show interest is EXIM Bank. Raj Banerjee, the deputy chief executive of EXIM bank, said they cannot wait to offer this service to their wide range of customers. At the moment they are going about installing the software and assembling a team that will be directly involved offering the Islamic Banking. Mr Banerjee believes this will be good for everybody. The bank is preparing to launch its Sharia compliant products as soon as the proposals are approved by the Bank of Uganda.

The Muslim community of Uganda asked the Government to speed up the process of providing regulations for Islamic banking. According to Speaker of Parliament, Rebecca Kadaga, the laws for Islamic banking have been passed but Bank of Uganda is reluctant to draft the regulations as well as issuing licenses for Islamic banking. Financial experts have often criticised Islamic banking for higher creating costs and bigger risks, a situation that has not been remedied over the years. The lack of unique frameworks by the Government to regulate Islamic banking is the other challenge, leaving the Islamic banks to be regulated as other conventional banks.

Ugandan investors are set to start a fully fledged Islamic institute called Midsoc Bank. Its promoter, Haruna Sebaggala, says it may start operations in six months, depending on licensing and funds. Midsoc Bank aims to target the unbanked population of the country, including both Muslims and non-Muslims. Currently, only 40% of 19 million potential customers have bank accounts. About 14% of Uganda’s 41.5 million population are Muslim. The nation’s largest banks such as Stanbic Bank Uganda and Standard Chartered Bank Uganda haven’t committed to Islamic banking. So far only Tropical Bank has confirmed it will offer Islamic products. Tropical Bank plans to initially run a dedicated department before establishing a subsidiary.

The government of Uganda has approved regulations covering Islamic banking. Governor Emmanuel Tumusiime-Mutebile said that once the regulations are gazetted, the central bank would be open for applications from financial institutions to offer sharia-compliant products. Uganda joins several African countries that have sought to develop interest-free banking in recent years, including Nigeria, Morocco and Senegal. Despite small populations of Muslims, countries such as Uganda, Kenya and Ethiopia are also developing the sector to expand financial access and inclusion. In December, the central bank of Uganda became an associate member of the Islamic Financial Services Board (IFSB), one of the industry’s main standard-setting bodies.

A joint initiative of the African Development Bank (AfDB) and the Islamic Development Bank (IsDB) will boost agriculture and enhance drought resilience in Nigeria, Somalia and Uganda. Stronger ties between the two banks will help ramp up agricultural production along important crop and livestock value chains. For example, in Nigeria the Plateau State Potato Value Chain Support Project of the AfDB and the planned IsDB’s Agro Pastoral Development Project in Kano State will promote higher household incomes through productive agro-pastoral activities. In Somalia, AfDB’s Say No To Famine project is providing emergency assistance support and facilitating drought resilience building through the restoration of community assets.

In Uganda the Insurance Regulatory Authority (IRA) is now awaiting Parliament to pass the Bill that proposes to amend the Insurance Act (2011) in order to cater for Islamic Insurance. Earlier this year, President Museveni assented to the amendment of the Financial Institutions Act (2014) that caters for Islamic Banking. Sande Protazio, the assistant director research at the IRA, said the Insurance Act was at the committee stage in parliament and the Bill would be important for the sector in opening up opportunities within the Shari'ah compliant insurance avenue. In the proposed amendments to the Insurance Act, insurance companies intending to offer Islamic insurance have to separate their assets, liabilities and expenses.

More than 2,000 groups of women will acquire interest-free loans worth Shs43 billion from the government under the Uganda Women's Entrepreneurship programme (UWEP). According to Mr Puis Bigirimana, permanent secretary at the Ministry of Gender, women entrepreneurs are constrained by limited access to finance as they attempt to grow their businesses. UWEP will promote women's economic empowerment through entrepreneurship skills. Under the programme, groups will receive up to Shs12.5 million each while special projects that benefit a bigger community will receive Shs25 million. UWEP National programme coordinator Ms Brenda Kifuko said all beneficiaries will have to pay back to enable more women access credit. Groups that pay in the first year of reception will only pay the principle amount while groups that pay after the first year will be subject to a 5% interest rate in form of a service fee to cater for inflation.

In Uganda the outgoing minister of Gender and Social Development has advised commercial banks to urgently develop products for Islamic Banking. Muruli Mukasa said the parliament passed the law and the all the communities in Uganda have accepted this model of banking. The Financial Institutions Bill 2015 paved way for the introduction of three new products: Islamic Banking, Bancassurance and Agency Banking. But Bank of Uganda still has to issue regulations that will guide commercial banks on how to manage the new form of banking.

Islamic banking in #Uganda will broaden government financing options and will ease its borrowing from the private sector, through the Sukuk bonds. According to the managing director of ABL Dunamis, Abubaker Mayanja, Sukuk funding will be available for government infrastructure projects; as long as they meet sharia requirements and the funds are invested directly into the project. He said the bonds will be issued by all commercial banks, regardless of whether they are Muslim founded or not.

In Uganda the first Islamic Banking and Finance (IBF) conference was held last week. Prof. Ashraf Bin Hashim said in Malaysia, most of the Islamic banks are subsidiaries to conventional banks; therefore, they are not looked at as competitors. They are developing themselves together. IBF will widen the pool of investors and Islamic donor streams to Uganda. Instead of having only conventional investors, there will be several potential Islamic investors in the country.

The Ugandan government reviewed the Financial Institutions Act 2004, that allowed the introduction of both Islamic and Agency banking. However, Islamic finance agitators still believe that without the revision of the Central Bank Act, the Hire Purchase Act, The Stamp Duty Act and the Accounting Principles Act, it will be difficult for Islamic finance to deepen in Uganda. Sulaiman Lujja from the Islamic University in Uganda says Central Banks have to develop, adopt and adapt various policies and prudential guidelines.

Uganda’s Muslim leaders have condemned the “ignorance” of church leaders trying to block Islamic banking legislation in the majority-Christian nation. Earlier this year, parliament amended a finance bill to introduce Islamic insurance. However, church leaders led by Archbishop Stanley Ntagali, head of the country’s Anglican church, has urged President Yoweri Museveni to reject the legislation. Nsereko Mutumba, spokesman for the Uganda Muslim Supreme Council, said the church leaders were just ignorant of the Quran, it has nothing to do with ISIS, Boko Haram or any other group claiming to kill non-Muslims. The Bank of Uganda is currently establishing a sharia advisory board to regulate and supervise Islamic banking.

Islamic banking can provide an array of financial products that would help boost an economy that's dominated by small businesses and start-ups. These small entities make a very huge contribution to greater economic growth. That said, many of Uganda's local banks regard these entities as "too small" and only want to characterise them as "start-ups" which they don't finance. Islamic Finance also provides for the Qard el-Hasan or a benevolent loan. Conventional banks provide these products in same form. However, there is a huge difference in the detail of how all this pans out. Islamic finance is the embodiment of the type of capital that will help boost a growing economy.

Since Parliament has finally approved Islamic Banking, an increase is expected in investment from numerous Islamic Banks. Abubaker B. Mayanja, financial economist with ABL Dunamis, anticipates an increase in Capital inflow of $600m over the medium term; driven first by international banks that already include Islamic Banking products in their offering elsewhere. The second wave will come from regional players that are already in the East African market. The third wave will come from the traditional Middle East players. The fourth wave will be an expansion of Islamic finance system; insurance (Takaful), capital markets- sukuk bonds and funds, pension management, leasing (Ijara), mortgages and investment banking.