KAMPALA • Islamic preacher Imam Idi Kasozi’s Friday sermons in the Ugandan capital typically focus on three subjects: Faith, mercy — and religiously compliant banking products.
Whether speaking from the pulpit in Kampala or at social functions, the 59-year-old has become Uganda’s most ardent promoter of Islamic banking, a practice the nation is set to follow neighbours Kenya and Tanzania in adopting after years of debate.
And though Kasozi perceives a religious obligation, others see a chance to expand finance in the East African country where only 40% of 19 million potential customers have accounts. About 14% of Uganda’s 41.5 million population are Muslim.
“The practice will help people get access to capital,” Kasozi said in an interview after the central bank published Islamic finance regulations in February. “It will benefit the country if they carry out good business practices.”
Though the nation’s largest banks such as Stanbic Bank Uganda Ltd and Standard Chartered Bank Uganda Ltd (StanChart) haven’t committed to offering it, the adoption of Islamic finance, which doesn’t allow the charging or paying of interest, would permit trading of some of the world’s fastest-growing financial instruments. Shariah-compliant assets are forecast to reach US$3 trillion (RM11.58 trillion) worldwide sometime in the next decade, from about US$2.1 trillion at the end of 2016.
Muslim-majority countries account for almost all Islamic banking, but the founding of the Islamic Bank of Britain in 2004 marked the first such institution outside the Muslim world.
Nations — including the UK, which seeks to become a global centre of Islamic finance, Luxembourg and South Africa — have since raised funds by selling Shariah-compliant bonds, or sukuk.
Establishing common standards for Shariah compliance has been a gradual process, restricting the acceptability of the bonds in some jurisdictions. Despite the growth, Islamic finance makes up only about 1% of global assets.
Uganda, East Africa’s third-biggest economy, has “great potential” for Islamic banking as many Muslims have avoided existing lenders because they charge interest, according to Juma Walusimbi, a retired central bank official who’s championed the system since 2009. The Uganda Bankers Association has hailed the “new prospects” it offers.
There’s been some opposition. Early last year, the local Observer newspaper reported that church leaders had petitioned President Yoweri Museveni to protest the adoption of Islamic banking, saying it would create “two parallel financial and economic systems” and “promote economic discrimination”.
Museveni had in 2016 praised the “new philosophy” offered by Shariah-compliant finance.
The central bank said in September that local and foreign investors had submitted applications to offer Islamic banking without identifying them. The institution’s spokeswoman, Charity Mugumya, didn’t respond to emailed questions first sent on March 6.
So far, only one established institution — Tropical Bank Ltd — has confirmed it will offer Islamic products. Its manager for Islamic banking, Sulaiman Lujja, said it hopes to start within two months, pending central bank approval.
Stanbic, the country’s largest lender, said by email that Islamic finance isn’t something it’s currently focusing on. StanChart said it’s being considered in the “long term”. — Bloomberg