What Uganda’s first sukuk issuance means for Islamic finance

By Sophia Kigozi

By cabinet minute, Uganda approved the issuance of a sukuk as part of the standard gauge railway financing.

Sukuk issuances are a global phenomenon, and these instruments are being issued by governments, government entities, local governments, multinationals and private companies.

If this innovative decision is successfully implemented, it would mark a milestone not just for government financing but also for the broader development of Islamic finance in Uganda.  It would signal Uganda’s willingness to diversify its financing sources while aligning with ethical and asset -based financial principles that are attracting global attention.

What sukuk is

Often described as an alternative to conventional bonds, sukuk is structured to comply with Sharia principles, which prohibit interest (Riba) and require financial transactions to be backed by tangible assets.  

They are Sharia-compliant capital market instruments for raising funds in which investors become beneficial common owners of the sukuk underlying tangible asset(s), usufructs of tangible assets, services or a project or project portfolio. Instead of earning interest, investors in a sukuk receive returns generated from performance or use of underlying assets such as infrastructure projects.

The key drivers have been attributed to the growing global Muslim population of over 2 billion people, demand for ethical and asset-backed finance, expansion of sovereign sukuk issuance, digital transformation through Islamic finance and regulatory reforms in new markets.

Infrastructure Sukuk issuance for Uganda

For Uganda, issuing an infrastructure Sukuk could unlock a new pool of capital. Stronger investor participation is expected from the Middle East, Southeast Asia and increasingly Africa. By tapping into this market, Uganda could diversify its investor base beyond traditional lenders and development partners.

Infrastructure financing is one of the most natural applications of sukuk. Energy projects, roads, railways, water systems and public facilities provide the asset base required for sharia -compliant financing structures.

A sukuk tied to infrastructure would allow investors to participate in the ownership or usufruct of these assets while the Government benefits from long-term financing aligned with project performance.

Significance to the rest of the Islamic finance ecosystem

Beyond financing, the issuance of an infrastructure sukuk would also catalyse the domestic Islamic finance ecosystem. Uganda has already legally operationalised the Islamic banking, Islamic Microfinance and recently Takaful and retakaful (Islamic insurance and Reinsurance) sectors.

Though the sector remains largely untapped, a sovereign sukuk could create momentum for financial institutions to develop Sharia-compliant products and services.

Local banks could participate in different arrangements, such as arrangers, collecting banks or investment intermediaries.

Legal and advisory firms would develop expertise in structuring Islamic financial instruments, regulators would refine frameworks for sharia governance and market oversight, and over time, these developments could lead to the emergence of a broader Islamic finance capital market within Uganda.

The implications for domestic revenue mobilisation are also noteworthy. Sukuk structures emphasise transparency, asset accountability, and risk sharing.

These features align well with principles of fiscal responsibility and public accountability in public finance management. Properly structured and executed, an infrastructure sukuk could strengthen investor confidence in Uganda’s public financial management systems.

Another important dimension is financial inclusion. A well-structured sukuk program could attract investors who prefer Sharia-compliant investments, including individuals and institutions that have traditionally stayed outside conventional interest-based markets.

This would broaden participation in Uganda’s capital markets and deepen financial inclusion.

The success of Uganda’s first infrastructure sukuk will depend on several critical factors, such as the demonstrated political will, pragmatism, supporting legal and regulatory frameworks as well as investor protection mechanisms. Tax neutrality is also essential to ensure the sukuk transactions are given an equivalent tax treatment as conventional bonds.

Equally important is the establishment of credible sharia governance. Capacity building will also be key. Policymakers, regulators, financial institutions and legal professionals must develop technical expertise in Islamic finance structures.

Public awareness is crucial as sukuk are often misunderstood as purely religious instruments rather than alternative financial instruments grounded in ethical finance principles.

If these foundations are properly established, Uganda’s first infrastructure sukuk could serve as a gateway to a much larger opportunity.

It could position the country as an emerging hub for Islamic finance in East Africa while providing a sustainable mechanism for critical national development projects and funding the country’s development agenda.

The author is a specialised Islamic finance law and projects practitioner