Bank of Uganda announced Friday that it had granted its first Islamic banking accreditation, following the president’s recent assent to the final piece of legislation paving way for the banking method.
The licence was awarded to Salaam Bank Limited, a newcomer to Uganda’s banking sector. Established in Djibouti in 2007, Salaam Bank acquired Top Finance Bank last year; the central bank officially confirmed the transaction in August 2022.
Islamic banking, also referred to as Islamic finance, is a method of financing and banking operations that is compliant with Sharia Law. Its core principle revolves around avoiding haram (harmful) practices, such as the charging of interest: all forms of interest are forbidden in Islamic finance.
Furthermore, “Islamic financial institutions must ensure that ambiguity (gharar) or gambling/speculation (maysair) is minimised in transactions and contracts.” These institutions, in compliance with Sharia law, are not allowed to invest in sectors or businesses deemed harmful, such as alcohol, pork, pornography, or gambling.
In Islamic banking, banks and their customers are considered partners who share profits or losses based on a predetermined and agreed-upon ratio. This practice demands full disclosure or minimal information asymmetry between both parties.
“The BoU is committed to providing oversight and support to Salaam Bank Limited as it embarks on this new journey,” said Michael Atingi-Ego, the deputy governor, during a ceremony held at the central bank’s headquarters in Kampala to hand over the license. “We believe that Islamic banking has the potential to make a significant contribution to the development of Uganda’s financial sector.”
Also at the ceremony was Ramathan Ggoobi, the secretary to the treasury and permanent secretary at the ministry of finance, planning, and economic development.
“The introduction of Islamic banking marks a pivotal moment in Uganda’s financial landscape, unlocking fresh funding avenues for businesses and individuals, thereby fostering financial inclusion,” a statement released by the central bank said.
