Kampala, Uganda | THE INDEPENDENT | John Peter Mujuni is the Executive Director of Micro finance Support Centre, a government institution charged with providing affordable financing to SMEs. He spoke to Joseph Bahingwire about their new financial services linked to Shariah law.
How has been the uptake of Islamic Micro Financing since the launch in May last year?
The uptake has been impressive. We have already disbursed 70 % of the allocated Shs 32bn fund to 54 projects countrywide, some with up to a tune of Shs 2 billion. We hope to disburse more of the remaining funds to various customers soon.
What are the key drivers for the positive response to this new product?
As an institution, we knew that many customers didn’t understand how Islamic micro financing works. We thus took time to prepare our clients so that they understand how this financing works. This made them take it more easily after realising that it had favourable terms compared to conventional micro financing that charges interest. In Islamic micro financing we do not charge interest but share profits.
What are the requirements for accessing this kind of micro financing?
For an institution to benefit from Islamic micro financing, they must be providing a service or product that is not against the Shariah law. They should not be involved in businesses such as piggery, prostitution, gambling, and alcohol among others. The business should also be legally registered with proper and audited books of accounts, have clear ownership and governance structures and should have been in existence for at least two years. Prior to giving out funds, the Micro Support Centre sends a team to carry out a feasibility study and looks at the cash flows of the project to ensure that it will make enough money to sustain the client and also able to pay back the loan.
Who are your target clients?
We give priority to Savings and Credit Cooperatives, producer and marketing cooperative societies and other organised groups. This is because multiplier effect is higher in such groups. We also fund Small and Medium Enterprises that are engaged in value addition as well as those dealing in tourism services. The programme has so far benefited over 10,585 people across the country.
Who are the partners in this programme?
We work with the government, the African Development Bank and the Islamic Development Bank that provided the funds for Islamic Micro financing. The funds were secured by the Uganda government and identified Micro Support Centre as the best institution to support this financing model.
How is the future outlook of Islamic micro financing in Uganda?
Islamic Financing is one of the fastest growing industries in the world having survived the global financial crisis. We hope that in Uganda it will grow and government will start providing direct support to the institutions involved. We have planted the seed as the first institution to provide the service and we intend to keep doing this using the money that we have given out and the profits our clients will be getting. With the high interest rates charged by most commercial banks, we hope Islamic financing is bound to liberate businesses.
What else would you like to tell the public about this new financial product?
Islamic financing is all about partnership. We finance already existing business especially in agriculture and only need a push to do more and share both profits and losses depending on the circumstances.