Islamic banking principles prohibit interest paid on all loans of money and investment in businesses that provide goods or services considered contrary to Islamic principles.
PIC:Bank of Uganda building. Speaker of Parliament, Rebecca Kadaga told Parliament that they had passed the laws for Islamic banking but Bank of Uganda is reluctant to draft the regulations.(File photo)
KAMAPALA - Members of the Muslim community have asked the Government to speed up the process of providing regulations for Islamic banking which does not permit the pursuit of profits.
Speaker of Parliament, Rebecca Kadaga told Parliament that they had passed the laws for Islamic banking but Bank of Uganda is reluctant to draft the regulations as well as issuing licenses for Islamic banking.
"When will Islamic banking commence? According to Islamic laws, Muslims are not allowed to borrow money with interest . The delay to begin Islamic banking in Uganda is excluding the Muslims from the economy," Kadaga said on Wednesday.
Islamic banking principles prohibit interest paid on all loans of money and investment in businesses that provide goods or services considered contrary to Islamic principles such as pork and alcohol.
David Bahati, state minister for finance said Parliament had passed the relevant laws for Islamic banking but he would find out why Bank of Uganda has not released the regulations for the service and the required licenses.
Latif Ssebaggala Sengendo (Kawempe North) said Muslims have been asking Government to begin Islamic banking. "When we meet the Muslim communities they ask for Islamic banking, waht reason shall we give for its delay?," Sengendo, one of top Muslim leaders in Parliament said.
Financial experts have often criticised Islamic banking for higher creating costs and bigger risks, a situation that has not been remedied over the years.
The critics also say Islamic banking has not included policies to uplift small traders and the poor. They caution that poor management has led to the collapse and challenges of managing many Islamic banks.
Islamic banks are not allowed to invest in any profit generating ventures such as Government securities as done by conventional banks which can create challenges.
The lack of unique frameworks by the Government to regulate Islamic banking is the other challenge, leaving the Islamic banks to be regulated as other conventional banks.
The International Monetary Fund (IMF) has warned that the rapid growth of Islamic finance in Kenya is happening without adequate protection of depositors as is the case with conventional banking.
The IMF in a recent report warned that Kenya was yet to refine its regulations to cater for Islamic banking despite the fact that the Shariah banks are offering loan products that are guaranteed differently from conventional bank loans.
"The legal framework exhibits some gaps, prudential frameworks have not been adapted to the specificities of Islamic banking and there are also remaining gaps in the Shariah governance framework, consumer protection framework, liquidity management, resolution and safety nets," said the IMF report.
Kenya is also yet to come up with a Shariah-compliant deposit insurance scheme and is continuing to manage deposit insurance premiums in a single pool for all banks a situation that could complicate compensation of depositors in the event a bank offering conventional and Islamic products collapses, the IMF warned.