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Uganda Asks for Indonesia Advice on Sharia Banking

“Bank of Uganda is expecting the first sharia bank in the “pearl of Africa” in early 2012 after the nation’s parliament is expected to pass a law permitting the establishment of Islamic banks.”

The Jakarta Post
February 14, 2011
Kampala, Uganda

The Ugandan central bank is currently struggling to address demands for the first sharia bank in the East African country.

Bank of Uganda, the republic’s central bank, has therefore sent delegates to Indonesia, home to the world’s largest Muslim population, to learn more about Islamic finance.

The visit of the Ugandan central bankers underscored the world’s acknowledgement of the rapid development of Indonesia’s Islamic banking industry, a Bank Indonesia (BI) official said.

Bank of Uganda is expecting the first sharia bank in the “pearl of Africa” in early 2012 after the nation’s parliament is expected to pass a law permitting the establishment of Islamic banks.

As the Ugandan central bank is working to secure parliamentary approval, several delegates are learning from a seven-day comparative study visit thousands of miles away in Indonesia, where 90 percent of the 237 million citizens are Muslim and where Islamic finance has been growing at rates never before seen.

“We’ve learned how Bank Indonesia has developed Islamic banking, the laws that have been put into place, how they are regulated and supervised and about Islamic bank licensing,” Bank of Uganda deputy legal counsel Titus W. Mulindwa told The Jakarta Post after a news conference at BI headquarters in Jakarta.

Mulindwa said the delegates have visited three different types of sharia banks in Indonesia, namely sharia commercial banks (Bank Syariah Mandiri), sharia business unit (Bank CIMB Niaga Syariah) and sharia people’s credit bank.

Grace Stuart Ndyareeba said demand for Islamic banks was high in Uganda, where only 17 percent of 30 million citizens are Muslim.

“We in Uganda know that Islamic banking is not only for Muslims. It’s another financial product,” he said, adding that conventional banks in the country charge “very high interest rates expensive for consumers”.

However, there are laws that prohibit Islamic banking in Uganda and the central bank has proposed amendments to the parliament. Indonesia, Southeast Asia’s largest economy, passed a law in 2008 that allows banks to offer services that comply with the Islamic ban on interest charges.

“It also happened with us. The public demanded Islamic banks and the legislature approved a banking act that made it possible for Islamic banks to operate,” BI director for Islamic banking Mulya Siregar said.

“Otherwise, substantial funds would be idle. By opening Islamic banks to answer the demand, the funds could be used to finance the real sector.” Ndyareeba said that was exactly what is happening in Uganda.

“Demand is high and the central bank is mandated to answer that demand. As a central bank, it’s our duty to make the financial sector conducive for investors,” he said, adding that three banks from the Middle East were interested in investing in Uganda.

“The Middle East investors can acquire a local bank or set up a new Islamic bank to start operations.”

The establishment of an Islamic bank, however, still awaits parliamentary approval of the proposed amendments. “We are hopeful that by the end of this year, or early next year, we should have the first Islamic bank license,” Mulindwa said.

“We’ve taken a lot of notes from the visits and a lot of literature and books to broaden our knowledge,” he said, adding that the delegates would also visit Malaysia and Dubai for the Islamic banking comparative study.

During the visit, Mulya announced that sharia banking assets in Indonesia grew 47 percent in 2010 to Rp 100.26 trillion (US$11.14 billion), and there were expectations of another 45 percent growth this year.


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