Ugandan businesses to take up interest free loans from Sharia based banks
After a long period of analyzing the bill, the government of Uganda officially grants banks to give out loans based on the Sharia – Islamic laws.
The Microfinance Support Centre Ltd (MSC), a Uganda government owned institution, is disbursing funds to interested SACCOs or businesses under Islamic microfinance – reported a local news paper in Uganda.
MSC’s procedure for giving out the loan is reported to will include a demonstration by the beneficiary of the fund. The beneficiary will be expected to show and exercise ability to manage the funds and yield out of it.
In addition, the beneficiary will also have to be tested on his/her business experience, and should be ready to comply by the Islamic requirements, terms and conditions.
According to the sources, the Microfinance Support Centre has so far received Ush3.3 billion ($910,781) from Islamic Development Bank to be disbursed, as more funds are expected from the Bank of Sudan.
However, the MSC officials have expressed a concern of not being so certain if the receivers of the funds will be honest enough to use it according to the Islamic teachings.
‘For instance,’ they said, ‘a person might receive the money, only to make a business selling foods and drinks that are contradicting with the teachings of Islam.’
‘It doesn’t mean we are going to have 100 percent compliance,’ said John Peter Mujuni, MSC’s executive director at a training session.
It has however been argued about by different experts who have explained that compliance can be guaranteed only if the governance of the institute hires people that are highly qualified in the Islamic Sharia law.
‘The true Islamic finance system is determined by the robustness of its Sharia governance system. The governance system is also effective when there is a strong advisory board that ensures end-to-end compliance of the bank operations,’ said Lujja Sulaiman, the Manager of the Islamic banking unit at Tropical Bank Ltd, quoted by journalists.
Lujja also added that countries that are already using the system, such as Malaysia and Bahrain are willing to help Uganda out, to see to the success of the system.
Reporter: Shamilah Namuddu