Expanding access to credit through Islamic finance

The Islamic finance market is on an upward trajectory, projected to reach a staggering $5.9 trillion by 2026. Investors are eagerly seeking new frontiers, and Uganda has emerged as a prime example of the expanding access to Sharia-compliant credit. Thiqa, a leading Islamic fintech company, is at the forefront of this trend, making waves in the financial landscape of the country. One of the key themes driving the growth of Islamic finance globally is the demand for fair and ethical banking products. Islamic finance aligns closely with these principles, offering non-interest-bearing products that uphold ethical standards. Moreover, the move towards digital banking and the reliance on technology to scale the distribution of financial services are fueling this growth. In Africa, with a significant Muslim population, the potential for Islamic finance is vast. Uganda, with nearly 20% of its population being Muslim, presents a ripe market for Sharia-compliant financial products. However, the country faces challenges in financial inclusion, with less than 10% of the population formally included in the banking sector. This underscores the pressing need for innovative financial solutions to bridge this gap. Thiqa CEO Danielle Lavan emphasizes that financial inclusion remains a critical challenge in Uganda, where the informal economy accounts for 60% of the market. Many individuals in this sector struggle to meet the requirements to access traditional banking services. Islamic finance offers a unique approach, focusing on partnership and risk-sharing, rather than interest-based transactions. By equipping clients with productive assets and sharing profits, Islamic finance promotes sustainable growth. The principles guiding Islamic finance, such as profit sharing and asset-backed transactions, offer a viable alternative for individuals excluded from the formal banking sector. In Uganda, recent regulatory developments have paved the way for the expansion of Islamic finance. The introduction of Islamic banking licenses and the establishment of Sharia-compliant windows within conventional banks have opened new avenues for growth. Scalability is a key consideration for Islamic finance in Uganda, with technology playing a pivotal role in reaching a wider audience. Thiqa has leveraged technology to develop innovative products tailored to the needs of Ugandans, providing an exceptional user experience and promoting financial literacy. By creating a platform that allows financial institutions to offer Islamic products seamlessly, Thiqa aims to drive financial inclusion across the continent. Regulatory frameworks in Uganda have evolved to support the development of Islamic finance. Clear guidelines on taxation implications have brought clarity to the sector, instilling confidence among financial institutions to explore Islamic finance opportunities. With the regulatory landscape becoming more conducive, the stage is set for Islamic finance to thrive in Uganda and beyond. As the Islamic finance market continues to expand, leveraging technology and ethical banking practices will be key to unlocking financial inclusion and empowering communities across Uganda and the broader African continent.