No bank has formally applied for an Islamic banking licence even though there have been expressions of interest in the model from both local and international institutions, according to the deputy governor of the Bank of Uganda, Louis Kasekende.
Mr Kasekende, who was speaking at a celebration to mark Eid-El-Fitri for the Bank’s Muslim community on 22 June, said the regulations governing the banking model are now in place.
“These regulations permit the BoU to issue a license for operating Islamic Banking Business in Uganda, either as a fully-fledged Islamic financial Iinstitution or to open an Islamic banking window alongside the conventional banking business,” Mr Kasekende said.
The regulations were published early this year, in February, and define three accounts customers can have with banks operating the model. The first account allows the banks to share profits and losses with fixed deposit account holders in accordance with a pre-determined specified percentage.
The second account is a profit earning investment account in which the bank uses the customers deposits to buy an asset it can then sell for a profit, and paying part of that profit to the customer at an agreed rate.
The third deposit account earns no profit and “shall be treated in the same manner as
deposits generally of a financial institution.”
Read the rest of Mr Kasekende’s speech below.
Remarks by Dr Louis Kasekende, Deputy Governor, Bank of Uganda, on the ocassion of Eid-El-Fitri celebration for the Bank of Uganda Muslim community, Bank of Uganda gardens, Kampala
Our Chief Guest, Rt. Hon. Ali Kirunda Kivejinja
Honorable Members of Parliament
Hajji Dr. Twaha Kaawaase, Second Deputy Katikkiro of Buganda
Hajji Mustapha Ssebagala Kigozi, Commissioner, Uganda Electoral Commission
Bank of Uganda Board Members present
Chief Executives of Financial Institutions
Bank of Uganda Senior Management and Staff
Brothers and Sisters
Let me join the previous speakers to formally welcome the second Deputy Prime Minister and Minister for East African Affairs, to the Bank of Uganda (BOU) and to thank him for graciously accepting to join us here today for our Eid-El-Fitri celebration. It is not the first time that Rt. Hon. Kivejinja is joining us to preside over our commemoration of the end of the holy month of Ramadan. We are indeed privileged as an institution that you always honour us with your presence whenever we come calling. We thank you and all our distinguished guests for honouring our invitation.
I bring warm greetings from Governor, Prof. Tumusiime-Mutebile, who is away attending to other official duties and therefore unable to join us today.
I congratulate all the BOU Muslim Staff and all followers of Prophet Muhammad countrywide upon the successful completion of the holy month of Ramadan.
I particularly want to commend the BOU staff that have gone ahead to observe the extra days of fasting – Sitati, and for the wonderful organization of today’s commemoration. As Management, our respect to diversity of faith amongst our staff and stakeholders is not just in word or documents, but rather in action as exemplified by our continued support to the pursuit and observance of the various pillars of religious faiths like Ramadan. May I reiterate our commitment to continue providing a conducive environment for all staff to seek spiritual nourishment in the various faiths ascribed to!
I believe that the holy month of Ramadan has reminded us of our cardinal duties to love and respect one-another, be truthful, extend a helping hand to those less fortunate than us and to be ready to sacrifice our personal goals for the common good. Such teachings provide a fundamental moral anchor for society and most certainly for us as an institution whose core duty of maintaining price stability depends on stakeholder belief in our integrity and professionalism. I encourage all believers to reflect these lessons in our day-to-day lives.
Lest we forget, my main task today is to invite Rt. Hon. Ali Kivejinja to address us. However, before I do so, allow me to provide an update on the operationalization of the Islamic banking model in Uganda, which I am certain, is of interest to many of us gathered here.
The good news is that the Financial Institutions (Islamic Banking) Regulations, 2018 are now in place. These regulations permit the BOU to issue a license for operating Islamic Banking Business in Uganda, either as a fully-fledged Islamic Financial Institution or to open an Islamic banking window alongside the conventional banking business.
The rather not so good news is that BoU is yet to receive any formal application for a license to open up an Islamic banking business, although there have been expressions of interest by various local and international entities. Let me use this opportunity to highlight a few key principles of these regulations so that you can ably enlighten all those interested in taking advantage of this opportunity.
First, the capital requirements for Islamic Financial Institutions are the same as those of the conventional Financial Institutions.
Second, the conduct of Islamic banking business as provided for in the Financial Institutions (Amendment) Act, 2016 shall also be subject to all other existing Financial Institutions’ regulations and prudential requirements.
Third, the Board of Directors of each licensed financial institution are required to set up a Shariáh Advisory Board, comprising at least three members to be vetted by BOU, and their cardinal role is to ensure compliance with Shariáh rules. The aforementioned regulations like all the other financial sector laws and guidelines are accessible on the BOU website.
Finally, we are aware, rather informally, of concerns expressed by some stakeholders regarding elements of the prudential guidelines, such as the relationship between a licensed Islamic financial institution and the central bank as a lender of last resort. I wish to encourage stakeholders to reach out to us with any of these reservations so that we can discuss and ensure that the regulatory regime permits both the growth of the Islamic financing window in Uganda and the continued stability of the financial sector as a whole.
It is now my singular honor to call upon Rt. Hon. Ali Kivejinja to address us.
Eid Mubarak, Eid Mubarak, Eid Mubarak