Islamic preacher Imam Idi Kasozi’s Friday sermons in the Ugandan capital typically focus on three subjects: faith, mercy -- and religiously compliant banking products.
Whether speaking from the pulpit in Kampala or at social functions, the 59-year-old has become Uganda’s most ardent promoter of Islamic banking, a practice the nation is set to follow neighbors Kenya and Tanzania in adopting after years of debate. And though Kasozi perceives a religious obligation, others see a chance to expand finance in the East African country where only 40 percent of 19 million potential customers have accounts. About 14 percent of Uganda’s 41.5 million population are Muslim.
“The practice will help people get access to capital,” Kasozi said in an interview after the central bank published Islamic finance regulations in February. “It will benefit the country if they carry out good business practices.”
Though the nation’s largest banks such as Stanbic Bank Uganda Ltd. and Standard Chartered Bank Uganda Ltd.haven’t committed to offering it, the adoption of Islamic finance, which doesn’t allow the charging or paying of interest, would permit trading of some of the world’s fastest-growing financial instruments. Sharia-compliant assets are forecast to reach $3 trillion worldwide sometime in the next decade, from about $2.1 trillion at the end of 2016.
Muslim-majority countries account for almost all Islamic banking, but the founding of the Islamic Bank of Britain in 2004 marked the first such institution outside the Muslim world. Nations including the U.K., Luxembourg and South Africa have since raised funds by selling Islamic bonds, or sukuk.
Establishing common standards for sharia compliance has been a gradual process, restricting the acceptability of the bonds in some jurisdictions. Despite the growth, Islamic finance makes up only about 1 percent of global assets.
Uganda, East Africa’s third-biggest economy, has “great potential” for Islamic banking as many Muslims have avoided existing lenders because they charge interest, according to Juma Walusimbi, a retired central bank official who’s championed the system since 2009. The Uganda Bankers Association has hailed the “new prospects” it offers.
There’s been some opposition. Early last year, the local Observer newspaper reported that church leaders had petitioned President Yoweri Museveni to protest the adoption of Islamic banking, saying it would create “two parallel financial and economic systems” and “promote economic discrimination.”
The central bank said in September that local and foreign investors had submitted applications to offer Islamic banking without identifying them. The institution’s spokeswoman, Charity Mugumya, didn’t respond to emailed questions first sent March 6.
So far only one established institution -- Tropical Bank Ltd. -- has confirmed it will offer Islamic products. Its manager for Islamic banking, Sulaiman Lujja, said it hopes to start within two months, pending central bank approval. Tropical, which is owned by Libyan Foreign Bank, plans to initially run a dedicated department before establishing a subsidiary, he said.
Stanbic, the country’s largest lender, said by email that Islamic finance isn’t something it’s currently focusing on. Standard Chartered said it’s being considered in the “long-term.”
One group of Ugandan investors is seeking about $7 million to start a fully fledged Islamic institute called Midsoc Bank. Its promoter, Haruna Sebaggala, says it may start operations in six months, depending on licensing and funds.
“There are lots of people in Uganda who have never used banks,” Sebaggala said. “We are targeting these, including non-Muslims.”