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.