Islamic banking may have been accommodated early this year in Uganda, but the regulator has yet to receive any application for a license as market players have other priorities and tax issues remain. MARC ROUSSOT brings you the story.
Everything is on hold at Tropical Bank. In March, the financier was putting the finishing touches to its application expected to be rapidly submitted to the Bank of Uganda, but six months later, Tropical Bank has not applied yet.
Offering Shariah compliant solutions remains high on the agenda of the bank which still intends to be the first to offer such products in the country, assures Sulaiman Lujja, the head of the Islamic banking committee at Tropical Bank.
Uganda’s regulator has actually not received any application for a license to offer Islamic products since February, when the Islamic banking law was gazetted. Only one UAE-based entity has expressed interest, but things did not go any further.
Interest toward Islamic banking has not disappeared among market players but other priorities have emerged, explains Haruna Sebaggala, the promoter of Midsoc Bank, a fully-fledged Islamic bank in the making.
“It took the authorities close to eight years to make the necessary amendments to the law. Quite obviously, some of the parties that had expressed interest may have diverted their attention to other areas,” Haruna says.
Indeed, banks are currently rolling out mobile money and bancassurance after having waited a year to obtain their license, according to Sulaiman. “If it takes a year for simple things like mobile banking to be launched, what about Islamic banking, which is much more complicated with the setup of a Shariah advisory board for instance,” he shares before adding: “Banks do not need and do not want to rush, they need to prepare.”
Making sure that everything is ready before applying is not a simple task, expounds Haruna. “Under the present law, applying for a license is a tedious exercise particularly for new entrants in the market. Documentation for an application of [a] banking license is time-consuming and a highly involving process,” he affirms.
In addition, the fact that the Islamic banking framework, which translates the law into concrete measures, will only be implemented in October has certainly not pushed financiers to apply quickly.
Tax issues have also been identified by the Bank of Uganda as a hurdle to the development of the industry to be on a par with conventional finance. “We are working together with [the] Uganda Revenue Authority and the finance ministry to address the key areas which would negate our objective of creating a level-playing field for both Islamic and conventional institutions,” states Kelvin Kizito Kiyingi, the deputy director of the communications department at the Bank of Uganda.