Uganda opens up to Islamic banking as first bank gets licence

Uganda will in the next 12 months have an Islamic banking financial institution opened to the public following the issuance of a licence by Bank of Uganda.

The move means Ugandans will enjoy a hybrid banking system through which customers will be able to access both conventional and Islamic Banking products. 

Salaam Bank was licensed earlier this month and already operates in Kenya, Somalia and Djibouti.   

While issuing the licence, Deputy Governor, Bank of Uganda, Mr. Michael Atingi-Ego, said he was confident the 26th bank to operate in Uganda has the expertise and resources to manage the prevailing risks.

“The BoU is committed to providing oversight and support to Salaam Bank Limited as it embarks on this new journey. Islamic banking has the potential to make a significant contribution to the development of Uganda’s financial sector,” Atingi-Ego said.

Islamic Banking is governed by principles of Sharia law and forbids payment or receipt of interest, decrees that profits and losses are shared and restricts financial institutions from using derivatives because they are riddled with excessive uncertainty. 

According to Dr Atingi-Ego since Islamic Banking prohibits charging of interest, “this makes it a more sustainable form of banking and it is well-suited to the needs of many Ugandans.”  

Secretary to the Treasury Ramadhan Ggoobi said: “This addition to our current financial services menu will play a role in [transforming] Uganda [through] providing funding solutions to the businesses that have been reluctant to use conventional banking due to the charging of interest.”

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