During the twelfth Bank of Uganda annual Eid party, held at the central bank on September 7, a group of Muslims under their umbrella Contact Group on Islamic Banking, managed to get a word on Islamic Banking in, with bank governor Emmanuel Tumusiime-Mutebile. He assured them that the central bank had already done its homework and submitted the proposed amendments to the Financial Institutions Act.
“We also had a word with Dr Anas Kaliisa, renowned Sharia expert who presided over the closing ceremonies. Dr Kaliisa appreciated the pioneering efforts of Contact Group on Islamic Banking and assured us of his full technical support,” Kalinge Nyago wrote on an Islamic social networking website, Uganda Muslim Brothers and Sisters.
The chief guest, Gen Moses Ali, also called for the introduction of Islamic banking in Uganda.
“The bank should exacerbate the introduction of other forms of banking systems that will entail justice and fairness. BoU should play a leading and encouraging role in the introduction of Islamic banking, which is a banking system that has been embraced by both Muslims and non – Muslims because of its unique characteristics,” said Moses Ali who was minister of Finance in 1976 at the age of 38.
Islamic financing is not centred only on credit worthiness and ability to repay the loans and interest; the worthiness and profitability of a project are the most important criteria of Islamic financing while the ability to repay the loan is sub-segmented under profitability.
“In my opinion, perhaps the most crucial feature, which forms part of the basis for the development of Islamic banks, is the relationship with depositors. The banks do not give loans to customers based on pre-fixed interest rates. They consider each case individually and invest depositors’ money in projects that give significantly high return on investments. I need not emphasize that under Islamic banking both profits and losses are shared by both parties,” Moses Ali stressed.
Islamic Banking is growing at a rate of 10-15% per year with signs of consistent future growth. Islamic banks have more than 300 institutions spread over 51 countries, including the United States through companies such as the Michigan-based University Bank, as well as an additional 250 mutual funds that comply with Islamic principles.
It is estimated that over US$822 bn worldwide sharia-compliant assets are managed according to The Economist. According to Kalinge Nyago, banks in Europe are already operating Islamic banking. They have opened up windows for those who wish to bank in an Islamic way.
“When you go for a loan it’s done against the proposal where you share the profits or losses according to the agreed terms. In Islamic banking there are no interest rates and at no time will you find property being confiscated,” said Kalinge Nyago told The Observer on phone.
Islamic teachings are against riba which means excess, increase or addition, which according to Sharia terminology, implies any excess compensation without due consideration.
The definition of riba in classical Islamic jurisprudence was surplus value without counterpart, or to ensure equivalency in real value, and that numerical value was immaterial.
Now a fourth consultative forum on Islamic banking is slated to be held this weekend, September 15, at Hotel Africana, for Ugandans to appreciate the system better, especially in this era when people are losing property to banks and money lenders due to unpaid loans of much less value.
Additional reporting from Uganda Muslim Brothers and Sisters.