CAIRO – Eyeing a share in the booming Islamic banking, the largely Christian Uganda is mulling new amendments in its financial system to allow Islamic banking services.
“We’ve been studying amendments to the current banking rules to allow Islamic banks to own assets," Titus Mulindwa, deputy legal counsel at Bank of Uganda, told the Nigerian paper The Nation on Wednesday, February 16.
We are also “looking at refining tax laws for Islamic banks to operate.”
Speaking from Jakarta, Mulindwa said along with law amendments, the government will be sending representatives from Uganda’s central bank to Indonesia to learn from the experience of the world’s most populous Muslim country in Islamic banking.
Indonesia, Southeast Asia’s largest economy, passed a law in 2008 to allow banks to offer services that comply with Islamic laws.
Uganda hopes to pass law amendments enabling Islamic finance by early 2012, Mulindwa said.
Islam forbids Muslims from usury, receiving or paying interest on loans.
Transactions by Islamic banks must be backed by real assets, not shady repackaged subprime mortgages.
Shari`ah-compliant financing deals resemble lease-to-own arrangements, layaway plans, joint purchase and sale agreements, or partnerships.
Investors have a right to know how their funds are being used, and the sector is overseen by dedicated supervisory boards as well as the usual national regulatory authorities.
Islamic banks have proved a success because of rules that forbid investing in collateralized debt obligations and other toxic assets that cause financial crises.
The proposed financial amendments aim to lure Muslim investors into the largely Christian African country.
"The Middle East investors can start operations either by acquiring a local bank or setting up a new Islamic bank in the country," Grace Stuart Ndyareeba, deputy director of commercial banking at Bank of Uganda, said, declining to name the banks.
Muslims make up around 12 percent of Uganda’s 33 million population, according to CIA Factbook.
The amendments would allow Ugandan Muslims to engage in Islamic banking in their home country.
"The interest in Islamic financial services is driven by the people," Ndyareeba said.
"As the central bank, we’re facilitating their needs."
The Islamic banking system is being practiced in 50 countries worldwide, making it one of the fastest growing sectors in the global financial industry.
Currently, there are nearly 300 Islamic banks and financial institutions worldwide.
A long list of international institutions, including Citigroup, HSBC and Deutsche Bank, are already operating Islamic banking business.Starting almost three decades ago, it has made substantial growth and attracted the attention of investors and bankers across the world, with assets predicted to grow to $1 trillion before 2013.