Uganda Parliament on January 6, 2016 passed the Financial Institutions Amendment Bill, which among others things, introduced Islamic Banking.
While this was welcome news to the proponents of this system, many financial analysts have been left wondering how such form of banking that is consistent with Islamic Shari’ah (law) will take root in a country that is about 88 per cent non-Muslim and has for long used conventional banking. However, here are reasons why Islamic banking can succeed in Uganda:
As far as macroeconomic indicators are concerned, Uganda’s economic growth rates over the last six years are on average generally higher than the global rates and those registered in the Middle East. This implies that the level of economic activity is higher in Uganda than in the Middle East where Islamic banking is rapidly growing.
Such high levels of economic activity are favourable for investment in Islamic banking, since the products of such an investment tend to be on high demand when economic activity is high, especially when they are favourable to clients.
Uganda’s inflation is generally average single digit rates. Such rates are, according to Bank of Uganda Governor Emmanuel Tumusiime-Mutebile, within the range desired as a stimulant of economic activity. Indeed, a slight increase in market prices tend to stimulate supply and, therefore, production and investment. This is bound to increase the demand for favourable banking services. So, in terms of key macroeconomic indicators, Uganda offers a viable opportunity for investing in Islamic banking.