Africa set to make big investment in Islamic banking as government embraces interest-free banking

Despite the turbulence in the global economy and specifically in the banking sector in Africa, there is a new frontier of Islamic banking which still remains untapped.

The stage is set for the rapid growth of Islamic banking and finance across Africa. Africa's potential for growth in retail banking has drawn investment interest from several international Islamic banks.

Governments are gradually making regulatory decisions to establish laws that allow for non-interest banking.

The Ugandan government, for example, has approved new laws and regulations covering Islamic banking with the country’s central bank in an effort to boost financial inclusion in the East African country.

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The Islamic sharia law prohibits interest. Islamic banking is therefore lauded as a step towards expanding financial services for the country’s large and often poor Muslim minority in many African countries.

The central bank, upon the gazetting of the regulations, will open up applications from financial institutions to offer banking products in compliance with sharia law. The Governor of Uganda’s Central Bank, Emmanuel Tumusiime-Mutebile revealed in a speech to the Uganda Bankers’ Association.

Uganda will join Nigeria, Morocco, and Senegal as the African countries to venture into Islamic banking.
Kenya and Ethiopia are also expected to follow the trend of Islamic banking.

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Ethiopia earlier experimented Islamic banking in 2008 but the move stalled and banking experts describe the move as “still” born as very few banks offer a limited and narrow range of Islamic products to few customers.

Islamic finance, in general, does not include interest and avoids businesses that could be deemed as harmful, such as tobacco, liquor, pornography, and gambling.

 

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