Islamic Banking: President Museveni Launches Uganda’s First Islamic Bank

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Uganda’s President Yoweri Kaguta Museveni has on Wednesday officially launched the country’s first-ever commercial bank that operates on the principles of Islamic banking, paving the way for a hybrid commercial banking system that combines both traditional banking products and Islamic banking ones.

Licensed by the Bank of Uganda on 8th September 2023, the Djibouti-born Salaam Bank is being touted as a benchmark for the operationalization of the Islamic banking system in Uganda to complement the conventional banking system – in a country where most citizens are unbankable and can’t access commercial banking products due to high-interest rates, among other reasons.

“ I welcome Salaam Bank. Uganda is a big market with a population of 48 million, and in the next 27 years, the population will be 106 million. Therefore, Islamic banking has the potential to make a significant contribution to the development of Uganda’s financial sector by bringing more Muslims to the money economy.” President Yoweri Museveni said at the launch ceremony held at Kololo Ceremonial grounds in Kampala.

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Islamic banking refers to a banking system that adheres to the tenets of the Islamic faith (Shariah law) and two of the fundamental principles that differentiate it from traditional banking are the sharing of profit and loss with the customer and the prohibition of the imposition and collection of interest by the lender.


President Museveni at the launch of the Islamic Bank/ Courtesy Photo
President Museveni at the launch of the Islamic Bank/ Courtesy Photo

In this sense, therefore, unlike traditional commercial banks, an Islamic bank does not make its money by charging its clients interest rates on loans (the higher being the better).

 

Instead, it makes its money by sharing in the client’s profits (equity participation).

Thus Islamic banks could help foster the much-needed financial inclusion in Uganda’s economy.

There are at least 560 banks and over 1,900 mutual funds around the world that operate based on Islamic principles, according to the Islamic Finance Development Report of 2022.

Between 2015 and 2021, Islamic financial assets grew to about $4 trillion from $2.17 trillion and are projected to rise to roughly $5.9 trillion by 2026, according to the same Report.


Benjamin Ahikiiriza is a Legal Writer And Digital Communications & Marketing Specialist majoring in Lawyers, Law Firms And the larger Legal Sector.

Benjamin currently Works as the Director of Content and Business Development At LegalReports.


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