Uganda's central bank has issued its first Islamic banking licence to a unit of a Djibouti bank after President Yoweri Museveni last month signed a law legalising Islamic banking. 

The license was issued to Salaam Bank, the Ugandan unit of Salaam African Bank, which is the largest lender in the tiny Horn of Africa country of Djibouti. 

Salaam Bank was formed after its parent bank entered the East African country’s market last year by acquiring Top Finance Bank Ltd. 

The Bank of Uganda's (BoU) deputy governor Michael Atingi-Ego said in a statement that the launch of Salaam Bank was "a significant milestone for Uganda" as Islamic banking would not limited to Muslims.

Islamic banking would unlock fresh funding for businesses and individuals, and strengthen financial inclusion, he said.

"The BoU is committed to providing oversight and support to Salaam Bank as it embarks on this new journey," Atingi-Ego said.

"We believe that Islamic banking has the potential to make a significant contribution to the development of Uganda's financial sector."

Museveni signed the Financial Institutions (Amendment) Act, 2023, after the Ugandan parliament passed laws authorising Islamic banking in June after fine-tuning legal hurdles on the definition of interest, loan insurance and loan reinsurance. 

Islamic banking, also known as Sharia-compliant Islamic finance, is a financial system that operates under the principles of Islamic law, known as Sharia. 

Islamic banking is expected to increase as Africa's unbanked populations, particularly those who prefer not to participate in the traditional banking system owing to religious convictions, represent an untapped source of deposits and investments, the International Monetary Fund and ratings agencies have said.
 
(Editing by Seban Scaria seban.scaria@lseg.com )