Within a few months
This is banking according to Islamic principles. Supporters think this kind of banking will provide an alternative to what they consider to be high interest rates charged by commercial banking institutions.
He said any innovation in Ibadat is not acceptable. "Every transaction is acceptable as long as it does not involve one or more of the prohibited ones such as Riba, Gharar, Qimar. Muslims therefore can have their own financial or banking system that complies with the rules of the Islamic Shari'ah, as long as they avoid the prohibited transactions," he said.
He said Islamic banking and finance is not based on charging interest but on profit and loss sharing (PLS).
Chachi said the primary aim of any financial system, is to facilitate the flow of funds from savers who have financial surpluses, to investors who have financial deficits.
"It is very difficult to channel these surpluses to those who need them without a financial intermediary that collects surpluses and passes them efficiently and effectively to those who need them. Thus, the need for banks and other financial institutions to carry out this task," he said.
"Just as money is the mediator which facilitates the exchange of goods and services instead of barter, the financial intermediation facilitates the collection and delivery of funds," he said.
He says financial intermediation is very important in order to mobilise idle funds, finance projects, increase and diversify investments, create new job opportunities, increase and diversify production of goods and services and raise national income thus contribute to economic development.
Chachi said until recently (1970s), most economists believe that no financial system can develop without recourse to interest and that any religion, like Islam, which prohibits interest, is an obstacle to economic growth and development.
He said after almost 50 years of implementation of Islamic finance, many economists think that the Islamic financial system, if applied properly, may not only help growth and development but help also reduce the problems of the recurring financial crises of the capitalist system.
"Islam is not the only religion that categorically prohibits interest on loans and considers it as Riba (usury). Before the repeal of usury in late Middle Ages in
"It was only after the repeal of the prohibition of interest and the establishment of the so-called 'legal rate' that usury received its present meaning of exorbitant charge for a money loan or a charge that exceeds the 'legal rate'."
According to Chachi, interest rates lead to inflation (higher prices of goods and services) as the manufacturers raise their prices to compensate for the costs paid to the financier.
Interest rates can also lead to bankruptcy of many companies and small enterprises funded with interest in the case of failure to make sufficient profits to pay their debt and interest thereon.
He said this can lead to spread of unemployment due to bankruptcies and reduced volume of investment, thus hampering economic growth and economic development.
Chachi said banking with interest rates can lead to concentration of wealth in few hands of the community as a result of securing compensation for the owners of capital and failure to ensure fair distribution of wealth.
According to Juma Kisaame, the Managing Director of dfcu bank and also a member of the
As of 2013, the total industry assets grew by 6% compared to 20% in
Losses have gone down to Ush85 billion from Ush547 billion in two years. The total combined assets have hit Ush17.8 trillion with customer deposits at Ush12 trillion while the branch network arriving at 635 branches.
Kisaame said with
Kisaame said the internal challenges to commercial banking as high cost of funds - external debt, high cost of operation large skills gap and a low customer base.
"We also face external factors like effects of the global uncertainty - Euro zone crisis, climate change and environmental challenges, regional stability, low levels of financial literacy, poor infrastructure especially in the rural areas and a competitive environment and emergence of mobile money transfer services," Kisaame said.
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