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Micro lenders look forward to Islamic Banking to enhance inclusion

Bank of Uganda issued new regulations


Kampala, Uganda | THE INDEPENDENT | More financial institutions are coping with the new regulations that were introduced to strengthen the sector. These include the increase in the minimum working capital requirements for commercial banks from sh25 to 120 billion by December 2022 and sh150 billion by June 2024.

Through the Financial Institutions (Revision of Minimum Capital Requirements) Instrument, 2022, the Central Bank also raised the minimum capital for credit institutions to 20 billion Shillings by December 2022 and to 25 billion Shillings by June 2024, while Microfinance Deposit-Taking Institutions, MDIs will maintain a minimum of 10 billion Shillings.

Other regulatory developments are the policies and legislations for bancassurance, agent banking and Islamic banking, all aimed at enhancing financial inclusion. The Bank of Uganda says a majority of the institutions have already complied with the new requirements, which have also been welcomed by MDIs which previously were limited in terms of banking channels.

Now, with MDIs also allowing agent banking, Islamic banking and bancassurance, they can also extend their operations even further to the unbanked low-income and rural populations.

Finca Uganda, an MDI says that with agent and digital banking, they can now afford to offer services largely in a similar way as commercial banks. Finca Managing Director, James Onita says that provided the regulatory environment allows them to reach more people more cheaply, it favours them.

He, however, says there is a need for the financial institutions to sensitise the public on the new developments if the people are to take advantage of them. The company has started a three-month campaign aimed at encouraging customers to transact using the digital and agent platforms, which they hope will enhance the national transformation to a cashless economy.

Robert Kakande, the Executive Director says that currently, 66 per cent of the transactions by their customers are done online and they hope to increase this to 75 per cent by the end of the Gonza Life campaign in October.

The lender called for the expeditious conclusion of the regulatory process for the industry to fully implement Islamic banking, which they say, they are looking forward to. Onita says they are currently working on products under Islamic finance as consultations with BOU progress.

The digital transformation in the industry has seen the financial sector reduce the need to open or maintain traditional bank branches.

Uncharacteristically, banks have not opened a new branch in the last two years, while on the contrary, several have been closed, as clients are encouraged to use electronic and agent banking services.

There are currently about 27,000 agents countrywide.



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