Uganda’s Islamic bank to start operations soon   

By DAVID MALINGHA DOYA
The EastAfrican

The National Islamic Bank of Uganda, formed recently following a merger between International Investment House (IIH) of Abu Dhabi and the local National Bank of Commerce (NBC), expects to begin operations in five months’ time.

Officials from Abu Dhabi said that the bank will serve as a conduit for equity investments, including bits of sovereign wealth funds from the Middle East, as it prepares to provide capital for big-ticket infrastructure projects in the country.

Ahmed al Marar, head of IIH who chairs the boards of both the Islamic bank and Hits Telecom Uganda, said, “Our business model is a unique opportunity of being able to fully access capacity as well as distribution network of IIH associated with Hits Uganda.”

Hits Telecom, one of the newly licensed telecommunication operators in the country, is months behind schedule in rolling out its services.

He said that the strategy is to strongly focus on innovation to access the unbanked part of the bankable population which, studies estimate to be about six million people, while the banked are between one and two million.

The bank is also not keen on rolling out a physical branch network like the existing players have, but rather use cheaper means of banking such as mobile phones using Hits Telecom as the distributor here.

On the retail side, the bank will join the bandwagon of existing commercial banks in searching for the unbanked and small account holders, but employing information communication technologies for distribution rather than rolling out a physical branch network.
 
This is the first Islamic bank in Uganda basing service delivery on Sharia compliance and the second in East Africa after Gulf Africa Bank — set up in Kenya in 2007 — with a vision to expand within the East and Central Africa regions.

Uganda has been the preferred frontier in the region for foreign direct investment in the financial sector over the past two years with prior arrivals including Kenya Commercial Bank, Fina Bank and Equity Bank all from Kenya and United Bank of Africa from Nigeria.

Under the arrangement, IIH is expected to invest $50 million in the new institution as its first capital contribution, said the investors. The share-structure features 76 per cent stake to IIH while the rest will be held by shareholders of NBC.

NBC is a small bank given the scale of commercial banks in Uganda today. In 2007 it made Ush752 million ($429,714) in profit before tax up from Ush218 million ($124,571) in 2006.

Its assets totalled Ush15.6 billion ($8.9 million), while the liabilities are about Ush9.3 billion ($5.3 million) as of December 2007.

At the same time, the bank has mobilised Ush8.9 billion ($5 million) in customer deposits, while its loans and advances stood at Ush2.9 billion ($1.6 million) only.

IIH, on the other hand, is one of the prominent private investment firms from the Middle East with equity investments in emerging markets in the form of private public partnerships involved mainly in infrastructure projects in sectors such as energy, telecommunication, transport, oil and real estate.

Explaining the banking philosophy based on Sharia, Mr Al Marar said, “In Islamic banking, we share risk with whoever is seeking our financial services. It is a safe financial tool and guards any economy because of the fair share of the up and down size.”

He added that their optimism is premised on predictions that Uganda’s economy will continue to steadily grow at rates of 8-9 per cent, yet infrastructure where they intend to capitalise has a number of projects still on the drawing board such as airports, roads, energy, oil and tourism.
 
Uganda Investment Au-thority has said the financial sector is most profitable in the country, with its growth attributed to general macroeconomics, favourable terms of trade with neighbours in the region and changing public attitudes towards banking and credit.

An official from the Uganda Bankers Association said bank deposits were increasing because there is a realisation that the economy is growing.