Bank of Uganda issues first Islamic banking licence

The Bank of Uganda granted its first Islamic banking licence on September 8. Salaam Bank Uganda, a subsidiary of a Djibouti-based bank, received the licence at the central bank’s offices from deputy governor Michael Atingi-Ego.

The Ugandan parliament passed legislation in June to authorise Islamic banking, which president Yoweri Museveni signed into law in August. The legislation removed the requirement to establish a “central sharia advisory council”, which the Bank of Uganda had opposed.

Salaam entered the Ugandan market after acquiring a local lender last year. It also has operations in Kenya and Somalia. Salaam Bank Uganda is expected to begin commercial operations over the next year.

“The BoU is committed to providing guidance oversight and support to Salaam Bank as it embarks on this new journey,” said Atingo-Ego, who has also been acting governor since January 2022. He added Islamic finance could “make a significant contribution to the development of Uganda’s financial sector”.

In a press release, the central bank said “the introduction of Islamic finance marks a pivotal moment in Uganda’s financial landscape”.

Policy-makers hope Islamic banking will expand financial inclusion, since it does not involve charging interest rates.  According to central bank figures, the weighted average lending rate for domestic currency loans from commercial banks was almost 18% in July.