By Sylvia Juuko
FINANCIAL sector regulators are taking lessons in Islamic finance to prepare for the review of existing laws that will pave way for the introduction of Islamic banking in the country.
Islamic banking refers to a system of banking that is consistent with the principles of Islamic law (Sharâ€™iah).
Patrick Kagolo, the central bank acting deputy governor, explained last week that Islamic banking prohibits the payment of interest fees (Riba) for the lending of money.
â€œIslamic finance encourages business trade and trade activities that generate fair and legitimate profit.
â€œIn addition, Islamic banking prohibits speculative activity, which also helps ensure that there is a close link between cash flow and productive activities,â€ he said at a workshop organised by the central bank at the Imperial Royale Hotel, Kampala.
He noted that this insulates it from potential risks resulting from excess leverage and speculative activities.
It is the only type of banking that has weathered the global economic downturn.
â€œFinancial analysts say that as a global economic crisis deepened, Islamic financial institutions escaped relatively unscathed from the severe downturn which affected most conventional financial institutions,â€ Kagoro said.
Muddassir Siddiqui, a partner with the Dubai-based Denton Wilde Sapte, highlighted the principles of Islamic finance emphasising that it did not allow the enrichment by harming others through the sale of drugs, arms, alcohol, pornography and stocks of conventional banks.