KAMPALA – Banking Expert advises Moslems in Uganda. You must comply with Islamic Banking Principles or else you lose out on Salam Bank.
The commercial history of Salam Bank as an organization date back to 1952 when Abdul Salam Abu Issa opened ‘Salam Studio’, the first photographic studio and film processing laboratory in Doha. In 1954, he then converted the adjoining restaurant into a gift shop, renaming the combined establishment, ‘Salam Studio & Stores’. Establishing its headquarters in the Kingdom of Bahrain in 2006, Al Salam Bank has since cemented its reputation as the fastest growing Bank in the Kingdom and a highly influential force in the Islamic banking industry on a regional level. Leveraging on its robust financial standing as the industry’s strongest in asset capital, the Bank has a proven track record in risk mitigation and effectively shifting to market dynamics, through its agile and aggressive growth strategy. Salam Bank was awarded as ‘Best Retail Bank in Bahrain’ at the UK based MEA Finance Awards 2022, recognized for its innovative retail banking portfolio, inclusive of transformative products, digital experiences and elevated client service and its asset base stood at USD 3.899Bn as of Dec, 2022. Speaking at the license handover in Kampala, Bank of Uganda Deputy Governor Michael Atingi-Ego, however, warned there were risks associated with any new venture, noting that, “I am confident that Salam Bank has the expertise and resources to manage these risks.”
The 27th March 2024 will be a historical day for the Moslem community in Uganda and this was a gift for Ramazan as President Museveni Launched Uganda’s First Ever Islamic Banking Institution, during the launch, he had this to say; When they told me about Islamic banking, I told them I have no problem with it. I said we should let them operate and that is why we have Salam Bank now. He urged that Islamic banking is a form of banking based on Islamic principles. Basically, in Islamic banking it is not allowed to pay and receive interest but rather it is based on profit sharing. Islamic banks focus on generating returns on investments through investment tools that are “Sharia” compliant. The president assured Moslems that If you convince me that the PDM and Emyooga money has some contradictions as per the Islamic teachings, then I will find a way how I send your money direct to Salam bank.”
Islamic finance brings financial activities that adhere to Islamic law (Shariah), which prohibits certain practices such as charging or paying interest (riba), engaging in excessive uncertainty (gharar), and investing in businesses that involve forbidden activities (haram). Islamic finance is based on faith, transparency and guided by basic principles. Uganda is relatively not an Islamic state and so Moslems have been using traditional banking and micro finance channels for over 100 years and as of today, the Islamic banking/finance is the fastest growing financial inclusion network globally.
The question remains, are the Moslems in Uganda ready for Islamic Banking?
According to Mr. Rafik Nayed Group Chief Executive Officer-Salam Bank, conventional banking treats money as a commodity and lend it against interest as its compensation and Islamic banking products are usually asset backed and involves trading of assets, renting of asset and participation on profit and loss basis.
Islamic banking is run on strict principles based on faith and transparency as compared to the traditional Banking System in Uganda. The banking sector in Uganda is marred by by high default rates, lack of transparency, exorbitant interest rates and penalties, Poor records management, under declaration of returns, forgeries on loan collateral and non-compliance by clients. The banking sector in Uganda controls business based on survival, mistrust and the winner take it all. Therefore, orientating Moslems from such banking environment to Islamic Banking requires patience, training and capacity building and introduction of Islamic banking into our teaching curriculum at all education levels. The business community needs a total shift in banking ideology so as to promote and take a benefit from Islamic banking. For Salam Bank to flourish in business, Ugandan clients have to believe in the principles of Islamic banking from Quran, the central religious text of Islam. In Islamic banking, all transactions must comply with Shariah, legal code of Islam based on the teachings of Quran as guided below;
Prohibition of Riba (Interest) and Islam prohibits the charging or paying of interest on loans. Instead, Islamic finance promotes profit-sharing arrangements, where the lender and the borrower share in the profits or losses generated by the investment and this requires good business ethics, transparency and faith. The principle of risk-sharing, where both parties share in the risks and rewards of an investment, this encourages prudent risk management and discourages speculative behavior. Asset-backed finance promotes asset financing, this is where transactions are backed by tangible assets such as real estate, commodities, or equipment and this ensures that investments are backed by real economic value and reduces the potential for speculative bubbles. Borrowers must avoid Haram activities as Islamic finance prohibits investment in businesses involved in activities that are considered haram (forbidden) in Islam, such as gambling, alcohol, tobacco, and certain forms of entertainment. There is high degree of Shariah Compliance as Islamic financial products and transactions must comply with Shariah principles, as determined by Shariah scholars who provide guidance on the compatibility of financial activities with Islamic law. The Islamic Contracts utilizes various types of contracts that comply with Shariah principles, including Mudarabah (profit-sharing), Musharakah (partnership), Murabaha (cost-plus financing), Ijarah (leasing), and Sukuk (Islamic bonds), among others. Ethical and Social Responsibility as an obligation in Islamic finance promotes ethical and socially responsible investing, emphasizing the importance of benefiting society while generating financial returns and this includes investing in projects that have positive social impacts and contribute to sustainable development. More Important to note is that Islamic finance recognizes the importance of charitable giving (sadaqah) and obligatory almsgiving (Zakah), which are integral components of Islamic financial planning and wealth management.
Overall, Islamic banking aims to provide financial services and products that are consistent with Islamic principles while promoting economic stability, social justice, and ethical behavior. It continues to grow as an alternative and complementary system to conventional finance, serving the needs of Muslims and non-Muslims alike who seek ethical and socially responsible financial solutions. Despite its growth, Islamic finance faces challenges such as harmonizing Shariah principles with modern financial practices, developing liquidity management tools, and addressing regulatory issues. However, it continues to innovate, with new products and services being developed to meet the needs of a globalized economy. Lastly Islamic banking has evolved from its early roots in Islamic principles to become a significant component of the global financial system, offering alternatives to conventional banking based on ethical and Shariah-
compliant principles.
Questions for further debate;
- Can Islamic Banking thrive in a conventional banking system?
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Can Christians benefit from Islamic Banking products?
The author, Denis Tukahikaho Ph.D. is the Chief Executive Officer Founder;
Denning & Young Consult Ltd.
Chairman NAFASI Multi-Purpose Cooperative Society Ltd
Founder -Good Price Supermarket Ltd
General Secretary -Allied Supermarket Owners Ltd
