Islamic banking regulations soon to be released, says Mutebile

Feb 03, 2018

Islamic banks use equity-participation systems. This means that if bank loans money to a business, the business pays back the loan without interest, but it gives the bank a share in its profits.

BANKING

KAMPALA - Bank of Uganda is soon to ask for applications from financial institutions to offer Islamic financial products once the regulations have been gazetted, according to Bank of Uganda governor Emmanuel Mutebile.

Mutebile said this while addressing bankers at the Uganda Bankers' Association (UBA) informal dinner on Wednesday at the Sheraton Kampala Hotel.

Islamic banks use equity-participation systems. This means that if bank loans money to a business, the business pays back the loan without interest, but it gives the bank a share in its profits. If the business defaults on the loan or does not earn any profits, the bank does not receive any profit either.

"The Islamic Banking Regulations drafted by the Bank of Uganda have been approved by  the  Ministry  of  Finance  Planning  and  Economic  Development  and  the Solicitor  General  and  will  soon  be  gazetted," Mutebile said in a speech.

Mutebile added that the Central Bank had issued a circular to supervised financial institutions in July requiring  them  to  submit  reports  on  their  preparedness  to implement new  International Financial Reporting Standard (IFRS) 9,  as  well  as  the  impact  of  the  standard  on  capital adequacy.

IFRS 9 calls for timely recognition of credit losses by banks and other lenders to prevent them from incurring big losses which can lead to their collapse.

"The reports submitted indicated that financial institutions are at varying stages of  preparedness  with  regard  to  putting  in  place  the requisite  IFRS  9 governance  frameworks,  policies,  procedures  and  information  system capabilities. The Bank of Uganda will continue to assess the banks' IFRS 9 implementation programmes," Mutebile said.

 

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