Kampala (Caasimada Online) – After a two-decade-long anticipation, the Bank of Uganda has finally endorsed its first Islamic Banking institution.

This groundbreaking approval introduces a dual banking system in Uganda, where clients will have the luxury of accessing both traditional and Islamic Banking services.

Out of the many, Salaam Bank emerges as a pioneer, having already established its mark in nations such as Kenya, Somalia, and Djibouti.

The bank has a year to initiate its operations. Once up and running, Salaam Bank will be supervised by the Bank of Uganda as a premier financial entity. This inclusion escalates the count of commercial banks in the country to a commendable 26.

At a recent event in Kampala where the official licensing took place, Deputy Governor of the Bank of Uganda, Michael Atingi-Ego, remarked, “I am confident that Salaam Bank has the expertise and resources to manage these risks.”

This statement emphasizes the bank’s robust infrastructure, even though he noted that every new venture inherently has its share of risks.

Islamic Banking: The Sharia perspective

Guided by the tenets of Sharia law, Islamic Banking steers clear from the acceptance or payment of interest.

It mandates the sharing of profits and losses and prevents financial institutions from diving into derivatives due to their inherent unpredictability.

Addressing this unique structure, Dr. Atingi-Ego highlighted that the prohibition of interest rates makes Islamic Banking “a more sustainable form of banking, and it is well-suited to the needs of many Ugandans.”

The residents of Uganda have long grappled with soaring interest rates, which hover around a substantial 26 percent.

The introduction of Islamic Banking is a monumental stride that aims to enhance financial inclusivity.

A paradigm shift in Uganda’s financial landscape

Salaam Bank’s pioneering move is not merely a new banking alternative. However, it sets a standard for other institutions to develop their Islamic Banking offerings. In the past, several banks exhibited interest in presenting Islamic Banking services.

Their ambitions, however, were curtailed by the need for more essential frameworks like the Central Shari’ah Advisory Council.

Elaborating on this, Finance Ministry Permanent Secretary Ramathan Ggoobi said, “The passing of pertinent tax bills between 2022 and 2023, including Income Tax, Value-added Tax, Stamp Duty, and Excise Duty, and the repeal of the Central Shari’ah Advisory Council’s necessity, have facilitated the launch of Islamic Banking.”

Ggoobi also urged citizens to understand that Islamic Banking isn’t an attempt to propagate Islam.

Instead, he emphasized its importance in revolutionizing Uganda’s economic landscape, particularly for those businesses that have been hesitant to embrace mainstream banking because of the interest rates.