The Islamic finance wave that recently swept Maghreb countries has reached Uganda where the industry has been partially accommodated following the introduction last month of a new regulation on Islamic banking. MARC ROUSSOT reports.
Desiring to be the first bank to offer Islamic products in Uganda, Tropical Bank is putting the finishing touches to its application to be submitted to the regulator in the next few weeks while establishing a Shariah board comprising three to five scholars to comply with the Financial Institutions (Islamic Banking) Regulations 2018 introduced in early February.
“In Uganda, more than 13% of the population are Muslims, so we feel that it is a sizeable market to tap; moreover, an important part of the population, not only Muslims, are financially excluded and have issues with high interest charged by conventional banks. As a result, the demand for Islamic banking products is quite high,” explains Sulaiman Lujja, the head of the Islamic banking committee at Tropical Bank.
While market players were expecting Bank of Uganda to finalize its regulatory framework quickly after the vote of the Financial Institutions (Amendment) Act 2016, recognizing for the first time, Islamic banking and products, the central bank took two years to develop the set of rules allowing financial institutions to offer Shariah compliant products on a window basis and on a stand-alone basis.
“The process was not complicated per se,” shares Dr George Wilson Ssonko, an economist at the Bank of Uganda. “Nonetheless, the Financial Institutions (Amendment) Act 2016 assented to in January 2016 had several developments such as modifications of credit reference bureau data providers, agent banking and bancassurance alongside Islamic banking. Consequently, the Islamic banking regulations took longer to accomplish on account of other developments that had to be operationalized,” he details.
“It was not just a copy and paste work of regulations already in place in Malaysia, Bahrain or the UK,” agrees Sulaiman. “Bank of Uganda had to consider the particularities of the country and to think about the kind of products that will be conducive for the local market for instance,” he says.
While the usual deposit and financing products such as Ijarah, Murabahah, Musharakah and Mudarabah have all been accommodated, Sukuk have yet to be approved.
“This is just the beginning of Islamic finance in Uganda; other laws and regulations will be amended and introduced in order to accommodate all sectors of the industry like Sukuk,” says Sulaiman.
The Ministry of Finance is also currently working on adapting tax regulations to Islamic finance products. Tropical Bank is one of the stakeholders that has been consulted on this matter. Changes in the Income Tax Act, among others, are expected to be done with the voting of Budget 2018-19 in June.