Financial Crime World

Islamic Banking Offers Hope for Ugandan Entrepreneurs in High-Interest Rate Environment

As Uganda’s economy faces high interest rates, Islamic banking is emerging as a potential source of funding for entrepreneurs and small businesses that have been unable to access conventional financing. With Islamic banking, borrowers can now tap into alternative sources of capital, which could stimulate economic growth.

Regulatory Reforms

The Bank of Uganda has taken several measures to promote financial stability and sustainability in the country. Some key developments include:

  • Corporate Governance Guidelines Issued: The Bank of Uganda has issued new corporate governance guidelines for financial institutions in the country. The guidelines require banks to have at least four independent non-executive directors and an in-house company secretary approved by the central bank.
    • Obligations for group structures: Parent companies must have adequate oversight over their subsidiaries and ensure that significant risks are given due consideration.
  • Minimum Capital Requirements Revised: The Bank of Uganda has revised minimum capital requirements for financial institutions, effective December 31, 2022. The new rules require banks to maintain a minimum paid-up capital of UGX120 billion (approximately USD31,684,464) and non-bank financial institutions to have a minimum paid-up capital of UGX50 million (approximately USD12,842).
  • National Payments Act Enacted: In 2020, the National Payments Act was enacted to regulate payment systems in Uganda. The act provides for the safety and efficiency of payment systems, oversight of payment instruments, and regulation of electronic money.

Other Developments

The Bank of Uganda has also launched several initiatives aimed at promoting price stability and a sound financial system:

  • Five-Year Strategic Plan: The Bank of Uganda has launched a five-year strategic plan to promote price stability and a sound financial system in support of socio-economic transformation in Uganda. The plan focuses on environmental, social, and governance sustainability (ESG), corporate governance, and developing tools for the analysis of climate change.
  • Waiver of Early Repayment Charges on Outstanding Loans: In another relief measure, the Uganda Bankers’ Association has suspended the practice of early loan repayment fees charged on outstanding loans. This decision is set to take effect on December 1, 2023, and will promote loan buyouts for borrowers.

These developments offer hope for entrepreneurs and small businesses in Uganda, who can now access alternative sources of funding and benefit from regulatory reforms aimed at promoting financial stability and sustainability.