Many people are interested in the phenomenon of Islamic Finance, particularly in how it differs from conventional banking. Islamic Banking and financial systems exist to provide a variety of Sharia-compliant financial services without religious discrimination with a view to fostering economic growth, socioeconomic justice, equitable distribution of income and wealth, stability of the value of money and the mobilisation and investment of savings for economic development in a way that ensures a just return to all parties involved.
The introduction of Islamic Banking and Finance in Uganda followed the assent to the Financial Institution’s Amendment Act (Act 2 of 2016) by the president of the Republic of Uganda on January 19th 2016. This amendment allows all financial institutions to carry on Islamic Finance business pursuant to an application to the Central Bank and eventual licensing whether through an Islamic window or as a fully-fledged Islamic Finance bank. The Amendment saw the Central Bank retain its supervisory role over both Islamic and conventional banks seeking to operate Islamic windows but provided for the central Sharia Advisory Council in the Bank of Uganda to advise the Bank of Uganda on matters of regulations and supervision of Islamic Banking systems in Uganda as well as approve any product to be offered by financial institutions conducting Islamic Banking.
The Central Bank, in consultation with the minister of finance, is mandated to make regulations in respect of the Sharia Advisory Council and Boards which are tasked with the advisor’s approval and review of activities of Islamic Financial business in order to ensure that the financial institutions comply with Sharia laws and rules and these regulations are underway. Seven years on and the journey to formulate the Financial Institutions (Islamic Banking) Regulations 2018 still goes on. Which will provide for Deposits in the Islamic financial business, profit earning and sharing, capital adequacy, liquidity, Sharia advisory board, Central Sharia Advisory council, Remedial measures, and sanctions among others.
In May 2023, a further legal milestone in the evolution of Uganda’s financial services industry in Uganda was reached. The Micro Finance Deposit-taking Institution Amendment Bill, 2022 was assented to into law and the Amendment also provided for Islamic Microfinance business, aligning the MDI Act, 2003 with the Financial Institutions Act, 2004 (as amended in 2016).
