Bank of Uganda has expressed concern that to this date, no institution has come out file an application to start up an Islamic banking business in the country, even when the environment has long been readied.
This is in spite of the fact that the Central Bank has already put in place the Financial Institutions Regulations to guide Islamic Banking operations.
The so-called sharia-compliant finance follows the Islamic law and among others, doesn’t permit charging of interest on loans. Some of the modes of Islamic banking include Profit sharing and loss bearing, safekeeping, joint venture and leasing.
According to BoU’s Deputy Governor Dr Louis Kasekende, Financial institutions are now free to apply to operate an 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.
Through the established regulations, he said, the Central Bank is able to issue a license for operating either one of the two.
Unfortunately however, Kasekende revealed this weekend, that no one so far has applied for a license.
While speaking at the Central Bank’s belated Eid al Fitr celebrations, the deputy governor noted, “Although there have been expressions of interest by various local and international entities, BOU is yet to receive any formal application for a license to open up an Islamic banking business.”
Kasekende called for further enlightenment of those that may be interested, emphasizing that there aren’t too many requirements needed to apply for an Islamic Banking Business
“First, the capital requirements for Islamic Financial Institutions are the same as those of the conventional Financial Institutions. Second, the conduct of Islamic banking business as provided for in the Financial Institutions (Amendment) Act, 2016 shall also be subject to all other existing Financial Institutions’ regulations and prudential requirements,” he said.
“Third, 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. The aforementioned regulations like all the other financial sector laws and guidelines are accessible on the BOU website (www.bou.or.ug).”
Kasekende noted that the BOU had learnt “rather informally,” of concerns expressed by some stakeholders 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.
“I wish to encourage stakeholders to reach out to us with any of these reservations so that we can discuss and ensure that the regulatory regime permits both the growth of the Islamic financing window in Uganda and the continued stability of the financial sector as a whole.”