Wednesday, 11 November 2009 22:33
Bank of Uganda is urging the government to pass the regulatory requirement for the establishment of the country’s first Islamic Bank which is expected to attract an infusion of millions of dollars into the banking system
“We have seen that Islamic financing is doing well in the United States, United Kingdom and other non-Islamic countries. There is no reason why it shouldn’t come here,” said Juma Walusimbi, the Communications Director at BoU.
“We are pursuing the question of the law. We have already discussed with the minister who is supposed to table our recommendations to amend the Act in cabinet and thereafter it will go to Parliament,” Walusimbi said, before adding: “Given our commitment, we believe that government will also respond positively.”
Islamic banking is bound to revolutionalise Uganda’s financial market. Premised on the Muslim Sharia Law, Islamic banking bars the charging of interest on loans. Islamic banking also prohibits a bank from investing money in a venture that is against Muslim principles as set by the Sharia Law. For example, a beer company may not be able to access funds from an Islamic bank.
Walusimbi said that the money that comes with Islamic banking would make a big difference in Uganda’s financial market.
“Initially about $10 million are available from one institution. There is another one that has indicated to invest $100 million. Normally we don't discuss this, but we are saying there is a lot of good money and this is the time we need this kind of money to come into the economy,” he said.
Nevertheless it would be interesting to see how other banks react to the establishment of an Islamic bank that does not charge interest on loans. Interest on loans is one of the largest sources of profit for ordinary commercial banks.