The statement that the current laws on Islamic banking are a myth than reality in Uganda is not entirely true. Or is it?
Islamic banking is a form of financial system that is based on the principles of Sharia’h, or Islamic law. It prohibits the payment and receipt of interest, as well as the involvement in gambling, speculation, and unethical activities. Islamic banking also promotes risk-sharing, social justice, and economic development.
The statement that the current laws on Islamic banking are a myth than reality in Uganda is not entirely true. While it is true that Islamic banking has faced some legal challenges and delays in Uganda, it is also true that some progress has been made to facilitate its introduction and operation in the country.
The legal developments related to Islamic banking in Uganda are:
In 2016, the Parliament of Uganda passed the Financial Institutions (Amendment) Act, which amended the Financial Institutions Act of 2004 to provide for the licensing and regulation of Islamic financial institutions and products.
In 2021, the Bank of Uganda issued the Financial Institutions (Islamic Banking) Regulations, which set out the rules and guidelines for the implementation of Islamic banking in Uganda.
In 2023, the Parliament of Uganda passed the Income Tax Amendment Bill No.2 of 2023, which cleared all legal roadblocks to the commencement of Islamic banking products in Uganda. The Bill amended the Income Tax Act to define and accommodate Islamic financial transactions such as mudarabah, musharakah, murabahah, ijarah, bai salam, istisna, sukuk, takaful, wakala, kafalah, and bai muajjal.
When executing Islamic banking transactions, the concepts of Sharia’h and conventional banking are likely to clash. This suggests that Sharia’h must be interpreted within the parameters of the Financial Institutions Act's requirements, but that this may be constrained by the rules and guidelines of the Central Bank. It has been determined that there are policies and practices that may be implemented to Islamic banks that would be unjust to them and would negate the entire goal of creating Islamic banking in Uganda.
It is further established that the English Common Law serves as the foundation for Uganda's judicial system. Various courts that were constituted in line with the legislation handle judicial duties. Since the Act does not designate a particular jurisdiction, the issues involving Islamic banks are likely to be heard by an ordinary court. Because the Act is standardized, any disputes resulting from transactions with Islamic banks are expected to be subject to the same method and process as those involving their conventional counterparts because Islamic banking disputes come under the same jurisdiction.
To oversee the process of product standardization and convergence, determine the qualifications and certification of the bank's Sharia’h Board members, and establish guidelines for Sharia’h control, the national Sharia’h Supervisory Board should be established as per the FIA (20I6). Islamic banking wouldn't be successful if the board members' credentials weren't well-organized. For instance, Regulation 13(2)(a) seems to apply to both Muslims and non-Muslims as long as you have the necessary credentials and expertise in Shari and Islamic banking. Therefore, it's possible that the question of religion won't come up. Conflict is likely to result from this, especially if one is not Muslim and does not comprehend Islamic law.
Islamic bonds are called Sukuk. Bonds are long-term financial products that are sold to investors by the government or businesses. In this scenario, the investor consents to lend the government or business money at a fixed interest rate. The underlying asset of the sukuk is a Sharia’h-compliant underlying asset, and the owner of the certificate has an undivided share of that asset. In accordance with the performance of the underlying asset, the returns on sukuk arrangements are paid according to the proportional ownership of that asset. Because the conventional bond contains an interest component and no underlying asset, it is against sharia’h law.
Islamic banking in Uganda still faces a few obstacles and legal limitations. For instance, the Stamp Duty Act, the Contracts Act, the Sale of Goods Act, and the Land Act need to be harmonized since they are likely to be incompatible with Islamic banking principles. A Sharia’h Advisory Board or Council must be established in order to monitor and regulate how Islamic financial institutions and products adhere to Sharia’h standards. Moreover, there is a need to create public awareness and education on the benefits and opportunities of Islamic banking for both Muslims and non-Muslims in Uganda.
It is important to note that while Uganda has made legal provisions for Islamic banking, it is not as widespread or established as conventional banking. Islamic banking in Uganda aims to provide an alternative financial system that adheres to Islamic principles, emphasizing ethical and equitable financial practices.
Wrtten by;
Mugerwa Joseph
Great!!