As Uganda prepares for Islamic financing implementations, the Central bank additionally lately released its Islamic financial laws this year. I took an effort to examine and discuss some of the areas in the regulations. Below is a first summary of my comments and findings in regards to the area on Earnings Sharing Financial Investment Accounts (PSIAs);
1 Definition of Revenue Sharing Financial Investment Accounts (PSIAs).
The Uganda Financial Institutions Islamic Banking Regulations (FIIBR) guidelines define PSIA as “… an account managed by a banks carrying out Islamic monetary organization– (a) in regard to home of any type of kind, consisting of currencyspecified by the Central Bank, held for or within the account …) (Part III- 6 (1 a).
a. Commentary on the above section;
The concern of contention in the above area is that the policy attends to an alternative for PSIA funds to be invested in currency as a kind of Islamic monetary company. Unfortunately the Shari’ah does not allow trading in money as a form of financial investment as a result of the regulation of sarf that includes modern fiat money and sets the exchange rules of 2 different currencies.
This rule calls for the immediate distribution of both currencies at the same/equivalent quantities (factoring in the prevailing currency exchange rate). In the contemporary globe, the above discussed sarf exchange guidelines for money are indicated to highlight the importance of cross border movement of goods and solutions in-order to assist in profession, but the currency itself is not planned to be traded as a product for profit. According to the Shar’iah, currencies are not traded or traded like products yet are meant as a circulating medium which is why the Shar’iah puts down different regulations of exchange for the asset group and the money group.
Islamic monetary organizations have lots of Shari’ah compliant financial investment choices where the PSIA down payments can be placed. It is true the Ugandan market may not have yet matured in regards to PSIA deposit positionings, however there is possibility for financial investment growth in the genuine products economic situation, profession and additionally in collaboration with the Uganda Stocks Exchange where trading in Shar’iah compliant equity investments are likewise available.
2 Financial institution to make up PSIA holder for losses incurred in-order to preserve public confidence in the financial institution.
Part III 6, (Subsection 2 of the Uganda FIIBR states that “Where an account owner bears losses based on the regards to the account, the banks will make payments to the account owner of quantities equivalent to any kind of losses in order to maintain public self-confidence because banks and the financial institution shall guarantee it has in location proper treatments for such payments”
a. Commentary on the above area;
The above section beats the real objective of having PSIAs and also renders the above Mudaraba agreement whereupon the PSIA is based non-Shari’ah compliant. This is likewise similar to the Mudarib (the financial institution) guaranteeing resources for the rab-al-mal (PSIA) which is not permitted according the Shari’ah because the owner of the funding is meant to bear the full loss of his resources other than in circumstances of fraudulence or gross neglect (also as highlighted partly III Area 6, subsection 1 c(iii) of the FIIBR. This also suggests that we may have two contradicting subsections in the FIIBR in regards to the PSIA meaning which should be evaluated.
I agree that in order for Uganda’s economic industry to stay sound and strong, there is requirement to maintain public confidence in the Establishments for Islamic Financial Services (IIFS), nonetheless there are alternative means, in which this can be done by the Central Bank without beating the best function of PSIAs and also guaranteeing that the Mudaraba contract whereupon these PSIAs are based stays Shari’ah compliant.
Verdict.
As much as the Central Bank needs to accomplish its function as an overseer and regulatory authority of the monetary field, nonetheless putting in place laws with such Shari’ah technicalities as reviewed above in regards to the Uganda FIIBR (guaranteeing resources by the Mudarib and financial investment of PSIA funds in non-Shari’ah compliant investments such as money profession) might rather result in withdrawal danger as an outcome of PSIA holders withdrawing their down payments from IIFS due to Shari’ah non-compliance. This subsequently might brings about economic market instability as a result of the withdrawal danger and therefore the Ugandan Central Bank needs to assess the above section in regards to the definition of PSIAs as mentioned in the FIIBR.