{UAH} Understanding the Islamic Banking under the Resentment of the Anglican Church Of Uganda
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Understanding the Islamic Banking under the Resentment of the Anglican Church Of Uganda: Is it Right or Wrong for our Country's Economy?
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By Ricardo John Munyegera
Islamic banking may solve Uganda's problem, either we like it or we hate it. That was a statement mentioned by one political analyst and left me itching. He gave no explanation over the idea as he was responding to what the Arch Bishop of the Anglican Church; Stanley Ntagali said. The moment I heard of this and the fact that the Arch Bishop was protesting against the Islamic before the president, then many economic questions came to play. I, at the same time remembered what President Yoweri Kaguta Museveni said about the religious leaders over issues of politics. He told them to stick to their business by then and forget politics. This might be the same solution as well.
It's in the same way that I would love to tell the Arch Bishop Stanley Ntagali to indeed leave economic issues to economists. In the same way; Gen. Kahinda Otafiire also said that we need to leave issues of Generals to Generals.' Many may seem to be wondering why I have to discuss this here yet this is not a business forum.
The fact that this is a news outlet, I will have to keep you glued here so as you can learn something as far as Islamic banking is concerned not to be like our friend above and the rest others who may follow suit. To educate the rest, the case of Islamic banking is a system of banking which is consistent with the principles of Islamic laws (Sharia) and its practical application through the development of Islamic economics.
By definition; Conventional banking is a banking system in which loans are given to people at fixed interest rates and more the time period taken to pay, the more the amount to repay; whereas Islamic banking is a banking system that is based on the principles of Islamic law and guided by Islamic economics. In addition, Islamic banking is based on sharing of profit and loss and significantly, the prohibition of the collection and payment of interest.
The diverging opinions over the two systems of banking depend upon these two business ideas. This is "interest and profits." 'Interest' is the charge for the privilege of borrowing money, typically expressed as annual percentage rate while 'Profit' is a financial benefit that is realized when the amount of revenue gained from a business activity exceeds the expenses, costs and taxes needed to sustain the activity or business. What we need to elucidate here are the differences.
Differences of the two banking systems: These are precise and simple to adduce here. The first one is that Islamic banking focuses on investment while today's conventional banking focuses on offering lending services to the borrowers. Islamic banking emphasizes on the soundness of the project a client is going to invest in whereas conventional banking puts much emphasis on the ability of the borrower to pay or repay the loan given to him.
In addition; Islamic banking's coordination with partners in resource mobilization other than the case of today's banking systems has a direct dependence on borrowing in resource mobilization. More so, Islamic banking applies much more moral criteria in terms of investment while on the other hand the conventional banking system only applies the only financial criteria.
Islamic banking is further broken into the modes of operations in both the conventional and the Islamic banking systems. In the Islamic institutions; there's the mobilization of financial resources for which the borrower invests them in an attempt to achieve the predetermined Islamically-acceptable social and financial objectives. Both mobilization and investment of funds are conducted in accordance with the principles of Islamic laws.
The major principles of Islamic banking: There are four principles which are considered here. These are the prohibition of Interest or usury; the ethical standards; the moral and social values and; the liability and business risk. These are totally different from the operations of the conventional banking operations but we will see that later.
The 'prohibition of interest or usury' is the first principle: The most important concept in Islamic Banking is that both the 'charging and the receiving of interest are strictly forbidden'. This is commonly known as interest/ Riba or Usury. Money, on its own for example, may not generate profits. When interest infects the economy, it jeopardizes the well-being of all of us. Therefore, when investors are more concerned with the rates of interest as its today and they are guaranteed returns than they are with the uses to which money is put, the results can only be negative. It's true that interest is forbidden in all the main religions like Judaism, Christianity and Islam. It's funny that all societies, these days deal with interest in banking thereafter.
The second principle is 'ethical standards': When Muslims invest their money in something, it is their religious duty to ensure that what they invest in is good and wholesome. It is for this reason that Islamic investing includes serious consideration of the business to be invested in, its policies, the products it produces, the services it provides, and the impact that these have on society and the environment. In simple terms, Muslims must take a close look at the business they are about to become involved in.
The third principle is 'the moral and social values': In the Islamic faith, it calls on all its adherents to care for and support the poor and destitute. Islamic financial institutions are expected to provide special services to those in need. This is however, not confined to mere charitable donations but has also been institutionalized in the Banking industry in the form of profit-free loans or 'Al Quard Al Hasan'. An Islamic bank's business includes certain 'social projects', as well as charitable donations. Islamic banks therefore provide profit-free loans. If for example, an individual needs to go to the hospital or a student wants to go to university; these Islamic banks give what is called 'Quard Al Hasan' ,i.e., profit-free loans and its normally given for a short period of at least a year and nothing is charged for that.
The fourth and last principle of Islamic Banking is the 'liability and business risk': This is the idea that all parties concerned should both share in the risk and profit of any endeavour or the business they are investing in. For the bank to be entitled a return; a provider of finance must either accept the business risk or provide some service such as supplying an asset. The great analytical meaning is that one becomes entitled to profit only when one bears the liability, or risk of loss.
Conclusively, by linking profit with the possibility of loss, Islamic law distinguishes lawful profit from all other forms of gain. If a bank therefore offers you a loan and you agree on the sharing of both profits and losses; then that system of banking can operate well in Uganda. Many businesses in Uganda never see their first or second birthday; many businessmen in Kikuubo – Kampala are shutting down because of the exorbitant interest rates demanded by the many commercial banks in Uganda. It's obvious therefore that this type of banking maybe of greater solution to such.
What we need also to know is that the current interest rate in commercial banks in Uganda is between 17 – 28%. You cannot blame banks simply because it's the nurtured system of banking since the great economists like Adam Smith. For Islamic banking system; in the countries were its operational, it has indeed accelerated economic development. Countries like South Africa, Egypt, Turkey, Pakistan, Indonesia, Tunisia, Libya, Qatar, United Arab Emirates, Malaysia, and among others are successfully and economically developing while Uganda and Kenya are simply struggling to start operations. I hope the Arch Bishop's resentment is now no more.
--
-- Understanding the Islamic Banking under the Resentment of the Anglican Church Of Uganda: Is it Right or Wrong for our Country's Economy?
Share this on WhatsApp
By Ricardo John Munyegera
Islamic banking may solve Uganda's problem, either we like it or we hate it. That was a statement mentioned by one political analyst and left me itching. He gave no explanation over the idea as he was responding to what the Arch Bishop of the Anglican Church; Stanley Ntagali said. The moment I heard of this and the fact that the Arch Bishop was protesting against the Islamic before the president, then many economic questions came to play. I, at the same time remembered what President Yoweri Kaguta Museveni said about the religious leaders over issues of politics. He told them to stick to their business by then and forget politics. This might be the same solution as well.
It's in the same way that I would love to tell the Arch Bishop Stanley Ntagali to indeed leave economic issues to economists. In the same way; Gen. Kahinda Otafiire also said that we need to leave issues of Generals to Generals.' Many may seem to be wondering why I have to discuss this here yet this is not a business forum.
The fact that this is a news outlet, I will have to keep you glued here so as you can learn something as far as Islamic banking is concerned not to be like our friend above and the rest others who may follow suit. To educate the rest, the case of Islamic banking is a system of banking which is consistent with the principles of Islamic laws (Sharia) and its practical application through the development of Islamic economics.
By definition; Conventional banking is a banking system in which loans are given to people at fixed interest rates and more the time period taken to pay, the more the amount to repay; whereas Islamic banking is a banking system that is based on the principles of Islamic law and guided by Islamic economics. In addition, Islamic banking is based on sharing of profit and loss and significantly, the prohibition of the collection and payment of interest.
The diverging opinions over the two systems of banking depend upon these two business ideas. This is "interest and profits." 'Interest' is the charge for the privilege of borrowing money, typically expressed as annual percentage rate while 'Profit' is a financial benefit that is realized when the amount of revenue gained from a business activity exceeds the expenses, costs and taxes needed to sustain the activity or business. What we need to elucidate here are the differences.
Differences of the two banking systems: These are precise and simple to adduce here. The first one is that Islamic banking focuses on investment while today's conventional banking focuses on offering lending services to the borrowers. Islamic banking emphasizes on the soundness of the project a client is going to invest in whereas conventional banking puts much emphasis on the ability of the borrower to pay or repay the loan given to him.
In addition; Islamic banking's coordination with partners in resource mobilization other than the case of today's banking systems has a direct dependence on borrowing in resource mobilization. More so, Islamic banking applies much more moral criteria in terms of investment while on the other hand the conventional banking system only applies the only financial criteria.
Islamic banking is further broken into the modes of operations in both the conventional and the Islamic banking systems. In the Islamic institutions; there's the mobilization of financial resources for which the borrower invests them in an attempt to achieve the predetermined Islamically-acceptable social and financial objectives. Both mobilization and investment of funds are conducted in accordance with the principles of Islamic laws.
The major principles of Islamic banking: There are four principles which are considered here. These are the prohibition of Interest or usury; the ethical standards; the moral and social values and; the liability and business risk. These are totally different from the operations of the conventional banking operations but we will see that later.
The 'prohibition of interest or usury' is the first principle: The most important concept in Islamic Banking is that both the 'charging and the receiving of interest are strictly forbidden'. This is commonly known as interest/ Riba or Usury. Money, on its own for example, may not generate profits. When interest infects the economy, it jeopardizes the well-being of all of us. Therefore, when investors are more concerned with the rates of interest as its today and they are guaranteed returns than they are with the uses to which money is put, the results can only be negative. It's true that interest is forbidden in all the main religions like Judaism, Christianity and Islam. It's funny that all societies, these days deal with interest in banking thereafter.
The second principle is 'ethical standards': When Muslims invest their money in something, it is their religious duty to ensure that what they invest in is good and wholesome. It is for this reason that Islamic investing includes serious consideration of the business to be invested in, its policies, the products it produces, the services it provides, and the impact that these have on society and the environment. In simple terms, Muslims must take a close look at the business they are about to become involved in.
The third principle is 'the moral and social values': In the Islamic faith, it calls on all its adherents to care for and support the poor and destitute. Islamic financial institutions are expected to provide special services to those in need. This is however, not confined to mere charitable donations but has also been institutionalized in the Banking industry in the form of profit-free loans or 'Al Quard Al Hasan'. An Islamic bank's business includes certain 'social projects', as well as charitable donations. Islamic banks therefore provide profit-free loans. If for example, an individual needs to go to the hospital or a student wants to go to university; these Islamic banks give what is called 'Quard Al Hasan' ,i.e., profit-free loans and its normally given for a short period of at least a year and nothing is charged for that.
The fourth and last principle of Islamic Banking is the 'liability and business risk': This is the idea that all parties concerned should both share in the risk and profit of any endeavour or the business they are investing in. For the bank to be entitled a return; a provider of finance must either accept the business risk or provide some service such as supplying an asset. The great analytical meaning is that one becomes entitled to profit only when one bears the liability, or risk of loss.
Conclusively, by linking profit with the possibility of loss, Islamic law distinguishes lawful profit from all other forms of gain. If a bank therefore offers you a loan and you agree on the sharing of both profits and losses; then that system of banking can operate well in Uganda. Many businesses in Uganda never see their first or second birthday; many businessmen in Kikuubo – Kampala are shutting down because of the exorbitant interest rates demanded by the many commercial banks in Uganda. It's obvious therefore that this type of banking maybe of greater solution to such.
What we need also to know is that the current interest rate in commercial banks in Uganda is between 17 – 28%. You cannot blame banks simply because it's the nurtured system of banking since the great economists like Adam Smith. For Islamic banking system; in the countries were its operational, it has indeed accelerated economic development. Countries like South Africa, Egypt, Turkey, Pakistan, Indonesia, Tunisia, Libya, Qatar, United Arab Emirates, Malaysia, and among others are successfully and economically developing while Uganda and Kenya are simply struggling to start operations. I hope the Arch Bishop's resentment is now no more.
--
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