Uganda’s Salaam proves Islamic banking holds big promise

Over the years, the potential for growth in Islamic banking in Eastern Africa has drawn keen interest from multi-national investors, the local business fraternity and even big-time financiers.

This is partly due to the large Muslim population in Africa besides what many experts see as the low starting base and growing government interest in the Islamic finance sector.

As of now, South Africa, Nigeria, Kenya and Mauritius are leading the pack in Africa’s Islamic banking, all thanks to a growing middle class together with a versatile investment climate.

For governments, steady growth of this category would diversify funding sources to power economies and to a large extent, plug shortfalls arising from various shocks, such as election jitters and the recent Covid-19 crisis.

In our region, Kenya has been leading in this segment. However Islamic banks still form less than 10 per cent of its commercial banks. But what’s undisputed is the exponential growth in Islamic finance in the last decade and the rising interest in East Africa.

The excitement that greeted the recent launch of Uganda’s first Islamic bank, the Salaam Bank, attests to this. Investors now say Uganda’s entry into this category is timely as projections show the sector’s big global forte.

Estimates by the World Bank show that global Islamic finance assets could reach $3.8 trillion by 2025.

Besides Salaam, some of East Africa’s established Islamic banks include First Community Bank Limited, Gulf African Bank and Sharjah Islamic Bank. Meanwhile, National Bank, PBZ, Amana, KCB, NBC and Stanbic have opened Islamic bank windows.

As demonstrated in last week’s Islamic Finance News (IFN) Global Awards 2024 in Dubai, East Africa demonstrated that it’s finally taking its place in the Islamic finance industry. Uganda’s Salaam Bank, with its Shariah-compliant financial services, was named Best New Islamic Bank.

The winners were announced at a Dubai hotel on Thursday. Padma Bank was runner-up while the Most Innovative Islamic bank went to Emirates Islamic with Al Rajhi being the runner-up. Under Best Islamic trustee, HSBC emerged top followed by Maybank.

Salaam Bank Uganda Board chairman Ibrahim Abdirahman and Chief Executive Officer Michael Mande who received the award said the award had recognised the bank’s commitment to providing innovative and customer-centric shariah-compliant financial solutions. “This is historic, the sky is the limit,’ said Mr Abdirahman.

The IFN Awards are a prestigious awards scheme in the global Islamic finance industry, and winning this award highlights Salaam's strong entry into the Ugandan market. The bank, which ventured into Uganda last September, is a subsidiary of the Djibouti-based Salaam Group.

With services such as savings accounts, home finance, asset finance, personal finance, and business finance, Mande said they are committed to standing as a beacon of Shariah-compliant financial solutions, tailored to meet the needs and aspirations of the communities while upholding the principles of Islamic finance.

To expand the gains, Islamic banks will have to sustain a high customer service quality, innovative product portfolio, strategic marketing and what various studies and research papers have called a ‘strong perception’ of Shariah.

Conclusively, it is vital to know the determinants of the pattern of Islamic bank expansion. Country-level data will be handy in ascertaining the patterns. As has been concluded by the International Monetary Fund time and again, Islamic finance has the potential to contribute to higher and more inclusive economic growth. Islamic banks must build on their successes to drive further growth.

-The writer is a finance and banking analyst