Our Simple Background
The steering committee Midsoc bank (under formation) with an indication of possible interest in participating in the promotion of a group of Islamic financial institutions that are independently managed but collectively owned and giving the group presence at every level of the Islamic financial industry value chain, i.e. banking, insurance, re-insurance, leasing, mortgage financing and sukuk, beginning with a bank, the promoters envisaged a growth and expansion program that would entail formation of an Islamic insurance, leasing company, mortgage finance, re-insurance and a funds management company, all sharia compliant institutions.
This group of financial institutions would be replicated in each of the Eastern and Central African countries to create a robust, broadly based and deep financial subsystem that would have sufficient capacity to compete effectively and the group member institutions complementing each other in line with an African wide strategic initiative of the Islamic corporation for development (ICD) (a member of the IDB group Institutions) to promote Islamic financial channels on the continent.
The promoters envisaged such an integrated group of financial institutions as the ideal model to approach growth and expansion of Islamic finance in the region based on Uganda’s privileged position as the only member state of the Organization of Islamic Conference (OIC)/Islamic Development Bank (IDB) in the whole of the Eastern and Central Africa. The IDB is a premier multilateral financial institution spear heading the promotion of the Islamic finance industry in aspects like equity, technical services and lines of credit. Uganda as a member country of the IDB has not made full use of its entitlement in this respect.
The Initial Group Project
MIDSOC Bank was conceived as an Islamic bank but on application for a banking licence in September 2009, the authorities in Bank of Uganda opted to amend the banking law first and foremost before licensing Islamic banks.
The Uganda promoters had presented the proposal for an Islamic banking project to the IDB in Jeddah and the latter agreed to participate in this would have been pioneer Islamic banking initiative in the region on the following terms;
IDB takes up equity shareholding to the extent of 33% of the paid up capital.
- IDB finances technical assistance by identifying and attracting an Islamic bank that will provide managerial and systems support.
- To commit the technical partner IDB would persuade the party to also contribute to the equity of MIDSOC by 33% of the paid up capital.
- To overcome constraints of a small landlocked economy, the MIDSOC Bank would be expanded to cover the Eastern and Central African region.
This application is freshly being followed up and indications are that the authorities will only be in position to come up with a position after the ongoing exercise of putting in place policy measures to be followed in licensing Islamic bank has been completed.
Amendment of the Bank Law in Uganda
The amendment has opened up opportunities for banks not only to practice Islamic banking but also to practise Agency banking which opens up opportunities to link with the rural agricultural sector and related suburbs that harbour a huge number of the financially excluded lot in Uganda given that most banks are represented through branch networks centred only in the major urban centres of the country.
The promoters are looking at the opportunity to work with rural based cooperative institutions not only to extend the bank services but also to build up a lasting relationship through rural economic development initiatives supported by specialized IDB agencies and others such as the international finance corporation who are interested in the subject matter.
The amendment of the law has also opened opportunity for banks to do bank assurance either selling their own insurance products or those of existing insurance service providers.
Group strategy as indicated above includes a presence in the insurance and re-insurance business sector to create synergy.
The promoters believe that both Islamic insurance and re-insurance are going to be strategically important areas of investment to exploit business opportunity at the regional level given the regions determined entry into Islamic finance (SMEs)