IS ISLAMIC BANKING THE ELIXIR TO UGANDA'S REAL ESTATE FINANCING PROBLEMS?

Islamic Banking is a financial system inline with the Islamic commercial law known as Figh al - mu' amalah based on the principles of equitable distribution, social justice and fairness as prescribed by the Sharia law. Islamic banking has already been embraced in all the East African countries excluding Southern Sudan.

With the introduction of this system of banking in Uganda, we are yet to see a major positive disruption in the real estate financing sector. This will be through the core sharia compliant elements of no Riba (Interest), Gharar (Uncertainty), Maisir (Gambling), Non-halal products and services.

Riba (Interest)
With Islamic banking, investors will be able to access finances minus interest since interest is totally prohibited under this financial system. Under the sharia law, its not acceptable to make money off bare money like the case is with conventional banking where the banks fix a predetermined interest on the finances given out to the investors irrespective of whether the business is a success or a failure. This element is deeply engrained in the Islamic banking debt and equity financing instruments like Musharakah and Mudarabah contracts (which I will discuss later).
This is to lead to more financial inclusion, finance availability and a fair source of financing to real estate investors.

Gharar (Uncertainty)
The Sharia prohibits activities with elements of uncertainty. This is to give rise to more certain financial products and services like Islamic real estate related insurance since Sharia scholars refuse to accept conventional insurance policies due to the enormous uncertainty involved and the fact that policy holders pay premiums expecting a certain amount in case of an emergency, but there is no guarantee or certainty about the amount which is totally un acceptable in Islam.
The Shari'a also acknowledges that Gharar (Uncertainty) can't be completely eliminated from the market and allows for some degree of uncertainty provided it isn't excessive in the contract.
Since uncertainty is one of the greatest fears of an investor, Islamic banking helps to ease on the uncertainty associated with the real estate investment opportunities.

Maisir (Gambling), Non-halal products and services.
However real estate projects that involve maisir/gambling where two parties risk a loss and the loss of the one means the gain of another just like in betting houses, casinos and projects involved in the creation, marketing, processing and selling of non-permissible foods like Alcohol just like bars and night clubs, don't qualify for Islamic financing because Shari'a law is a against gambling and spread of non-halal products and services.
Mutebi Emmanuel
SRC: Online Islamic Banking Course https://www.edx.org/course/islamic-finance-banking-irtix-ifb101x

More on Islamic Banking: http://www.independent.co.ug/business/business-news/10915-uganda-embraces-islamic-banking

http://www.monitor.co.ug/Business/Parliament-okays-Islamic-banking/-/688322/3024830/-/11xwixnz/-/index.html