Islamic banking is based on Sharia law and does not allow interest rates to be charged on the loans or other products from the commercial bank. Instead, the bank enters into an agreement with the other party to share profits or losses equally from the venture they are in. “That’s great news, not just for Uganda’s Muslim population, but anyone keen to see a thriving Ugandan banking market based on choice for consumers,” said a statement from Stanchart. Uganda joins countries such as Kenya and Nigeria in accommodating Islamic banking. (http://www.observer.ug/business/38-business/42023-islamic-agency-banking-to-change-face-of-industry )
Comment
It is surprising that Christian church leaders
are protesting Islamic banking that does
not allow charging interest on loans but are silent on Neo-liberal oriented
banks and micro- finance institutions in Uganda
that are oppressing and exploiting the poor in Uganda by charging a lot of interest. Some micro-finance institutions charge
interest of over 35% . The poor in Uganda have lost assets such as land
to these tyrannical institutions because of failure to pay back the loans. Islamic
banking is an assault to Christians religious institutions that have embraced
neo-liberal capitalism and its ruse to oppress and exploit the poor. I wonder whether
these religious leaders have forgotten that even the Lord Jesus Christ condemned the oppression of the poor.
Church leaders protest against Islamic banking
Written by Alon Mwesigwa
Any attempt of modesty was thrown out of
the window the minute some religious leaders learnt that government had
pushed through the amendments to the Financial Institutions Bill 2015,
part of which paved the way for Islamic banking, saying the country was
bound to face its most serious security threat if the Muslims had their
way, writes ALON MWESIGWA.
A group of religious leaders has petitioned President Museveni, protesting the incorporation of Islamic banking into Uganda’s financial system.
A group of religious leaders has petitioned President Museveni, protesting the incorporation of Islamic banking into Uganda’s financial system.
In letter dated January 14, 2016, the
authors, who describe themselves as “church leaders in Uganda” urge the
president not to sign the amendments, arguing that Sharia law, the base
on which Islamic banking operates, “will have far-reaching implications
beyond the suggested purpose of finance.”
The statement, which The Observer has
obtained, is signed by arch bishop of Church of Uganda Stanley Ntagali
as chair of the Uganda Joint Christian Council.
Other signatories are Bishop Simon Peter
Emau, the chairman of the Evangelical Churches of Uganda, Pastor Daniel
Matte, the president of the Seventh Day Adventist church.
The Financial Institutions (Amendment)
Bill 2015 was passed on January 6, 2016, paving way for inclusion of
Islamic banking, agency banking, and bancassurance in Uganda’s financial
sector.
The bill now awaits the president’s
assent but the protest of some sections of the church leaders could
prove a setback and an indication that not enough sensitization was done
before the passing of the law.
The church leaders noted that “we view
the passing of this bill as one of the most serious threats to national
security and stability with potential threats to future generations as
well.”
One key feature in Islamic banking is
that it enables a financial institution to lend without charging
interest. According to the International Monetary Fund (IMF), it is a
form of financial intermediation based on profit and loss sharing (PLS)
and the avoidance of interest rate-based commitments and contracts that
entail excessive risks and finance activities prohibited under Islamic
principles such as alcohol.
“We regret to note that the introduction
of Sharia law in the country opens door to the ultimate
operationalisation of fully-fledged Sharia not only in the finance
sector as contained in the bill but in all aspects of our national
life,” reads the church leaders’ letter.
It adds that it would create a “legal
stalemate with the Constitution of Uganda” and that all under this
arrangement, all Muslims might be compelled to use only Islamic banking
which may deny them the right to freedom of choice.”
The church leaders explained that the
bill “creates two parallel financial and economic systems for the
population of Uganda; for the Muslims, in conformance to the Sharia law,
and the non-Muslims. This will promote economic discrimination, and
will widen the already-existing income inequalities in the population.”
“Since in this bill the central Bank
seeks to establish a separate regulatory body to oversee Islamic
banking, there will be a serious challenge to harmonize this kind of
banking with the traditional banking system. This is because Islamic
banking will be run on Sharia law which is hinged on unique legal
principles which are in many ways contrary to Uganda’s constitution,”
they added.
Officials at the Bank of Uganda said
they hadn’t seen the petition. Last month, the central bank informed
journalists that they were working on regulations that would
operationalise the new amendments.
Meanwhile, some commercial banks had expressed their gratitude to the introduction of agency and Islamic banking.
In a statement in January, Standard
Chartered bank said: “That’s great news, not just for Uganda’s Muslim
population, but anyone keen to see a thriving Ugandan banking market
based on choice for consumers.”
Uganda joins countries such as Kenya and Nigeria in accommodating Islamic banking.
“With the first licenses granted in
Kenya just six or seven years ago, that would make Uganda’s leap into
Islamic banking a competitive advantage,” Stanchart says. It is also
present in Tanzania.
The market for Islamic financial assets
has grown at an annual average rate of about 16 per cent since 2006,
according to the IMF.
Starting with a handful of institutions
and negligible amounts in the late 1970s, Islamic finance grew to about
350 institutions and global total assets of about $1.7 trillion in 2013,
according to a 2014 IMF working paper.
Islamic finance has expanded throughout
the Middle East, Indonesia, the United Kingdom, North Africa, and, more
recently, in some sub-Saharan African countries, said the IMF, adding
that this is despite the fact that Islamic financial assets make up less
than one per cent of the world’s financial assets.Islamic, agency banking to change face of industry
Written by Alon Mwesigwa
The long-awaited Islamic banking is now
accepted in Uganda. Also, the new law allows for agency banking.
However, in a highly-competitive market such as Uganda, the new forms of
banking could face a stern test, writes ALON MWESIGWA.
Amendments to Uganda’s Financial Institutions Act 2004 will change the way banks carry out business in the country and certainly set stage for major growth, Standard Chartered Bank Uganda has said.
Amendments to Uganda’s Financial Institutions Act 2004 will change the way banks carry out business in the country and certainly set stage for major growth, Standard Chartered Bank Uganda has said.
Herman Kasekende, the CEO of the bank,
told the press on Friday that Parliament’s passing of the amended
Financial Institutions Bill, which opened the way for Islamic banking,
among other things, would change the face of banking in the country.
“This is going to revolutionalise the
way we do business here,” Kasekende said. “It’s been a journey of about
four years pushing for these changes.”
The new law allows banks to engage in
agency banking, a sector Standard Chartered bank remains keen on,
Islamic banking and bank assurance. In particular, Islamic banking is
based on Sharia law and does not allow interest rates to be charged on
the loans or other products from the commercial bank.
Instead, the bank enters into an agreement with the other party to share profits or losses equally from the venture they are in.
“That’s great news, not just for
Uganda’s Muslim population, but anyone keen to see a thriving Ugandan
banking market based on choice for consumers,” said a statement from
Stanchart.
Uganda joins countries such as Kenya and Nigeria in accommodating Islamic banking.
“With the first licenses granted in
Kenya just six or seven years ago, that would make Uganda’s leap into
Islamic banking a competitive advantage,” Stanchart says.
Meanwhile, agency banking allows a
financial institution to contract, say a retail shop, supermarket chain,
postal outlet or mobile network operator to process transactions on
behalf of the bank.
The agent can receive deposits, offer
cash withdrawals and sell other bank products. This allows the bank to
reach more places without having brick and mortar presence. This
massively cuts on the costs of operation for the bank.
“In a short time, we can have presence everywhere,” said Kasekende.
In Kenya, this sort of banking is
already popular with large financial institutions such as Equity bank.
In the first quarter of 2014, for instance, 14 Kenyan banks had
appointed 24,645 agents. They had executed about 93 million transactions
worth Ksh 500bn ($4.9 billion) since 2010, according to the Business
Daily, a Nairobi-based newspaper.
Equity bank reported that its agents
were carrying out more transactions in a day than its tellers and ATMs.
Rwanda, too, has okayed agency banking. In Uganda, banks remain thin in
some remote areas of the country, which they deem not commercially
viable to have a fully-fledged branch.
This is where telecoms have taken
advantage by recruiting more people on their mobile money platforms to
support some financial transactions.
Agency banking could not have come in
more handy. Less than five million Ugandans have bank accounts, out of a
possible 14 million adults in the country.
However, the current law does not
address the issue of one agent serving two banks at the same time.
Already, there are clear-cut examples within the telecom sector where
some companies do not prefer its agents to sign up to a second company.
Cecilia Muhwezi, the head of compliance at Stanchart, said she did not think one agent would serve more than one bank.
“That will be provided for in the regulations.”
In regards to bancassurance, banks will
be able to offer insurance products in partnership with insurance firms.
The banks would then earn a commission on policies or products sold.
The products can range from coverage for
illness, funeral expenses, to education expenses. Insurance coverage in
the country remains low, at less than one per cent of the population.
The banks’ entry into the industry could re-energise the sector.
Bank profits up by 55%
Written by Alon Mwesigwa
Banks
made more money in the financial year to June 2015 compared to the year
before, with the biggest amount of profit generated through earnings on
lending out money to the private sector.
In the 2015 financial stability report,
Bank of Uganda says the level of after-tax profits for the banking
sector increased by 55.1 per cent, an improvement from the decline of
27.8 per cent experienced in the year ended June 2014.
The rise in profitability was driven by
the increase on profits on loans, and falling operating expenses as a
share of income, the central bank said. Money earned on loans increased
by 9.8 per cent in the period under review, owing to the stock of
outstanding credit and high interest rates.
Yet while interest earned on loans and
advances continued to contribute the largest share of interest income,
it was income from banks’ holdings of government securities that
registered the highest rate of growth, at 22.7 per cent, boosted by a
rise in interest rates during the year.
Government borrowed Shs 1.4tn from the
domestic market between June 2014 and June 2015 and commercial banks
remained among the biggest lenders to it.
“Between June 2014 and June 2015,
interest rates on 91-day treasury bills increased by 3.8 per cent,
compared to average lending rates on shilling loans which rose by 1.2
per cent,” BOU said.
On the other hand, over the same period,
the banking system’s return on assets reached 2.5 per cent, while the
return on equity increased from 14.2 per cent to 15.6 per cent.
The shilling depreciated by more than 24
per cent during the same period, which favoured banks. As the central
bank raised its key rate to arrest inflation, interest rates and yields
on securities – money earned on government debt – increased. Banks
cashed in.
The economy is estimated to have grown
at five per cent, more than the year before at 4.6 per cent. This was as
a result of the growth in economic activity. In the 2015/16 financial
year, the economy’s growth is expected to be slightly high owing to
government’s huge investment in infrastructure.
On the stock market, there was a decline
in activity, with the turnover of Shs 310bn in 2014/2015 compared to
Shs 333bn the year before.
“The drop in equity turnover was driven
by rising interest rates that have seen investors shift to the
government bond market and a weak shilling that has seen off-shore
investors’ scale down activity,” BOU says.
Going forward, BOU says the increase in
interest rates in the US will enhance the appeal of US assets and this
could create negative implications for Uganda’s economy due to capital
outflows.
Also, the fall in commodity prices will
lead to a decline in incomes of households and commercial farmers which
in turn, affects government revenues. In addition, the slowdown in China
may lead to the reduction in Chinese investment in the country.
This may translate to reduced economic activity with a negative impact on growth, BOU says.
