The Minister of Finance, Planning and Economic Development, Matia Kasaija has said Islamic Banking could be a good initiative for Ugandans who hope to borrow money.
According to Kasaija, Ugandans have been reluctant to borrow from banks due to the high interest rates charged by commercial banks.
Islamic Banking is a non-interest banking system that is based on the principles of Islamic, or Sharia, law and guided by Islamic economics.
The major principles of Islamic banking are sharing of both profit and loss, and the prohibition of the collection or payment of interest by the lenders and the investors.
Investments in arms, narcotics, alcohol and gambling among others are forbidden in Islamic Banking.
Although Parliament passed the Islamic Banking regulation in 2016, it has been delayed by requirement to set up the Shariah Advisory board in the central bank to regulate the new banking establishment.
Kasaija said following a bench mark they carried out in areas where Islamic banking is being implemented, the system is working efficiently and Uganda could use this too.
In an interview with this publication, Kasaija says Ugandans could benefit especially from the fact that the Islamic banking does not charge interest in their borrowing. He says in the Islamic Banking, Ugandans will be able to share profits.
He says although a law on the regulation on Islamic banking has been set up, the final process is still being undertaken by bank of Uganda.
According to Kasaija, he thinks Islamic Banking is a good thing for Uganda.
The finance Ministry is currently reviewing the tax regime with a view to establishing parity treatment for both Islamic and conventional products for tax purposes.
This publication has learnt that Bank of Uganda is currently getting stakeholders views in relation to Islamic banking and sensitizing people before the establishment of a Shariah Advisory council. The Sharia board will then advise BoU on the products in Islamic Banking.
Although the banks under Islamic Banking do not charge interest, they use equity participation systems where a bank loans money to a business and the business instead gives the bank a share in its profits. If the business defaults or does not earn a profit, then the bank also does not benefit.