Financial inclusion behind Introduction of Islamic Finance

BANKING FINANCE

There is something unique about new things - they cause a lot of anxiety. So I don't find it abnormal when new things, ideas or people are rejected before they are understood or given a chance to kick off.

For years, the only form of banking Uganda knew was the conventional kind, where banks earn their money by charging interest on loans and fees for services. Lately, Islamic finance is being introduced. And while it is a welcome idea for some; many have been sent into a panic, including Christian clerics who were quoted saying that Government should halt its introduction until its intentions are made clear. They claim that it is aimed at recruiting Christians into Islam.

I must say I read the articles with a tad of mixed feelings because religious affiliation as an adult is by choice. Islam has been in Uganda longer than the financing mode was even imagined here. If a Christian wanted to convert to Islam he or she surely would not need the financing mode to do that. Besides, Muslims have carried out their religious obligations and activities just fine. Secondly, with information only a click away, anyone can Google about Islamic finance to have an idea what it is all about. Having taken time to read and experience how it works, I can strongly say that the reverse is true. Islamic finance has the best of intentions, especially for the poor.

This form of financing, which is based on the economic principles of Islam, does not encourage the charging of interest on borrowed money. Instead, it encourages the sharing of profits and losses between the financier and the borrower. That way the borrower does not feel burdened much as he is indebted. Interestingly, the Bible also has a number of scriptures that discourage the charging of interests. In my reading, I came across Deuteronomy 23:19 which states, "Do not charge your brother interest on money, food, or any other type of loan." Exodus 22:25 says "If you lend money to any of my people with you who is poor, you shall not be like a moneylender to him, and you shall not exact interest from him." Clearly, there were similar principles that guided financial transactions among the Israelites.

It is not rocket science that a large population of Ugandans is poor and is excluded from accessing financial services. I mean with the high interest rates being charged on loans, even those with a stronger financial muscle are not having a smooth sailing. While Islamic law recognizes that money has value, it rejects the idea that money increases in value simply with the passing of time. According to the Law, money increases its value when invested in a viable project. Therefore, one must work to earn profits. 

In this case, the financier enters into partnership with the borrower, with the former investing his money and financial expertise; and the latter investing his business acumen. When profits are made, the partners share them based on the agreed percentage at the beginning of the partnership. In this way, the borrower benefits from the financial boost and expertise to enable the business to grow. In cases of losses, the borrower does not suffer a Humpty-dumpty like fall but is assured of getting back to his feet as the financier will also bear his burden.

This brings to mind Nehemiah 5:3-5: "There were also those who said, 'We are mortgaging our fields, our vineyards, and our houses to get grain because of the famine.' And there were those who said, "We have borrowed money for the king's tax on our fields and our vineyards. Now our flesh is as the flesh of our brothers, our children are as their children. Yet we are forcing our sons and our daughters to be slaves, and some of our daughters have already been enslaved, but it is not in our power to help it, for other men have our fields and our vineyards." Evidently, the Almighty was not happy with this kind of affliction brought upon by borrowing on interest, thus the guiding principles on lending.

The emphasis on equity and investment serves to complement and strengthen the financial sector rather than bring it to its knees. Because of the involvement of the financier, investments are cautiously weighed to ensure that capital is well utilized and that the projects actually exist. The thorough audits and analyses play a vital role in the mitigation of risks, building investor confidence.

So contrary to the fears, Islamic finance is just another meal added to the banking sector menu for borrowers to choose from. Whereas it does not discriminate religiously, it offers an opportunity for the inclusion of Muslims as well. In Europe, more and more countries are embracing Islamic finance with the influx of Muslims into their countries. After all the Christian way is to love your brother as you love yourself, which calls for tolerance and inclusion regardless of race, religion, sex, tribe, nationality, among others.

The writer is publicist

atimlyn84@gmail.com