Commercial banks in Uganda intending to provide Islamic banking services will be subjected to stringent control measures.
The Central Bank’s warning for robust supervision of Islamic banking is partly informed by the fact that it is a new model in the country’s banking scene and entails several contracts which demand tight and prudent supervision. The product could expose customers to unwarranted losses if poorly supervised.
Ms Sophia Kironde Iwumbwe, the project manager, Islamic Banking at Bank of Uganda (BoU), stressed that Islamic banking would be subject to the same stringent rules applied to conventional banking model.She was making her remarks in her presentation last week at the first Islamic finance conference organised by Islamic University in Uganda (IUIU) in Kampala Ms Iwumbwe said requirements such as good governance and proper risk management also apply to the Islamic banking model.
Speaking at the same conference, Ms Justine Bagyenda, the Central Bank’s executive director supervision, said her department will oversee the operation of Islamic banking products and monitor banks that the regulator will have licensed.
Need for controls
Mr Sulaiman Lujja proposed that the existing laws be extended to deal with laxity leading to exploitation of customers transacting under the Islamic banking model. He was also of the view that the tax regime be customised to Islamic banking so that those involved are not left out of the tax bracket.
While closing the conference, the guest of honour, Prince Kassim Nakibinge, a banker, said Islamic banking is here to provide an alternative model of banking. He added that those who are opposed to the Islamic banking model, on the grounds that it is a tool to spread religion (Islam) lack knowledge about the model that has since been embraced even in the Western world.
Bank of Uganda statistics show that about 62 per cent of Uganda’s population has no access to mainstream financial services. The number of the population holding accounts in banks is 4 million or 33 per cent of the 12 million who are bankable. The savings to GDP Ratio is still low at 16 per cent. In addition, financial intermediation is poor as indicated by the stock of private sector credit of 11.8 per cent Of GDP.