Islamic Banking will Expand Financial Services - Bankers

1869 Views Kampala, Uganda

In short
Herman Kasekende, the Chief Executive Officer of Standard Chartered Bank told journalists in Kampala that commercial banks yearned for Islamic banking to satisfy the needs of consumers who were not comfortable with the available banking platforms because they clashed with their faith.

Players in the financial sector have welcomed the imminent start of Islamic banking in Uganda, saying it will increase the number of choices and deepen financial services.

Herman Kasekende, the Chief Executive Officer of Standard Chartered Bank told journalists in Kampala that commercial banks yearned for Islamic banking to satisfy the needs of consumers who were not comfortable with the available banking platforms because they clashed with their faith.

Parliament on Wednesday made amendments to the Financial Institutions Act of 2004 introducing Islamic banking as a new banking system in Uganda.

Under Islamic banking, also known as Halal banking, instead of a bank imposing interest, it shares the profit it accrues with the clients. Should the business make a loss, the bank also shares the loss with the borrower. Islamic banking does not allow charging of interests like conventional banking does.

The parliamentary clearance is, however, subject to the establishment of a Central Shari'ah Advisory Board in the Central Bank to regulate banks providing Islamic banking products. The Act also has to be accented to by the President.

Kasekende said at Standard Chartered, they see not only Uganda but Africa as the next frontier for the financial industry, including Islamic banking. He applauded the Parliament for making the amendments.

Kasekende adds that the introduction of Islamic banking calls for the creation of new banking platforms;
 
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Kasekende expressed optimism that Islamic banking will not only be successful but will attract lots of funding, including from several Islamic financial institutions, which would be crucial for essential infrastructure investments.

 He said Islamic bonds, or Sukuks, are seen by central bankers as a potential funding option for governments, citing Nigeria which now allows their issuance.

Kasekende said it would be prudent for Uganda to follow Kenya which introduced Islamic banking in 2010 and has since grown to account for around two percent of the financial market.
 
He said if Uganda built on the experience of established banking markets such as the Middle East, it could make great strides and develop a healthy Islamic banking eco-system which could grow much faster than other regions of the world.

Key in achieving this, explained Kasekende, is the development of local Islamic banking talent pool through capacity building.

Kasekende said Islamic banking develops much faster when it appeals to both Muslims and non-Muslims, adding that encouraging it as a choice for all is relevant to countries such as Uganda with large mixed populations.

 On whether Islamic bank will conflict with current banking systems, Kasekende said they will complement each other because they appeal to different tastes.
 
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Cecilia Muhwezi, the Head of Compliance at Standard Chartered Bank, said Islamic banking will appeal to the country's sizeable Muslim population as well as others interested in it.

Muhwezi says that whoever is not a Muslim but wants to transact under Islamic banking has to comply with the requirements and guidelines.
 
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Stephen Kaboyo, of Alpha Capital Partners, told Uganda Radio Network that introduction of Islamic finance banking is positive in the sense that it will assist in deepening access to financial services.

Kaboyo says that Islamic banking will enable a large pool of funds to be brought into the economy and more importantly promote the principle of financial justice.

 Kaboyo explained that Islamic banking, unlike the conventional banking that makes the borrower completely liable to any risk, allows for sharing of risk in a proportional manner.

Uganda presently has just over three million bank accounts, many with multiple account holders. Much of Uganda is also not reached by financial services, which tend to favour urban areas over rural ones.

The law does not make it mandatory for all commercial banks to introduce Islamic banking. It depends on whether the bank has the capacity or not.

World over, Islamic banking assets stand at more than 1.3 trillion dollars, that is 52 times the Gross Domestic Product of Uganda.
 

 

About the author

David Rupiny
In his own words, David Rupiny says, "I am literally a self-trained journalist with over 12 years of experience. Add the formative, student days then I can trace my journalism roots to 1988 when as a fresher in Ordinary Level I used to report for The Giraffe News at St Aloysius College Nyapea in northern Uganda.


In addition to URN for which I have worked for five years now, I have had stints at Radio Paidha, Radio Pacis, Nile FM and KFM. I have also contributed stories for The Crusader, The New Vision and The Monitor. I have also been a contributor for international news organisations like the BBC and Institute for War and Peace Reporting. I am also a local stringer for Radio Netherlands Worldwide.


I am also a media entrepreneur. I founded The West Niler newspaper and now runs Rainbow Media Corporation (Rainbow Radio 88.2 FM in Nebbi). My areas of interest are conflict and peacebuilding, business, climate change, health and children and young people, among others."