An analysis of the legal and regulatory challenges in the implementation of Islamic banking in Uganda

Date
2026
Authors
Najjemba, Leila Linda.
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Publisher
Makerere University
Abstract
This study explores the effectiveness of the legal and regulatory environment surrounding Islamic banking in Uganda highlighting the challenges faced by Islamic financial institutions in aligning with Shariah principles within the broader financial sector. The rise of Islamic banking in Uganda, which gained momentum after the 2016 amendment to the Financial Institutions Act of 2004, marks a significant shift in the financial sector. This amendment allowed for the establishment of fully-fledged Islamic financial institutions and enabled existing conventional banks to integrate Islamic banking services. However, despite these regulatory advances, the integration of Islamic banking into Uganda's financial system remains incomplete, primarily due to the inadequacy of the existing legal and regulatory framework. The study identifies key legal challenges hindering the full adoption and implementation of Islamic banking in Uganda. The study found that the absence of clear regulations has led to operational inefficiencies, compliance risks, and financial exclusion for customers seeking Sharia-compliant services. Furthermore, ambiguity in dispute resolution mechanisms and insufficient investor confidence present significant barriers to the growth of Islamic finance in Uganda. Using a qualitative research methodology, the study explores the nature, context, and principles of Islamic banking and evaluates the challenges faced by financial institutions in adhering to Shariah-compliant practices. The study recommends the enactment of a specific Act of Parliament that specifically accommodates the principles of Islamic banking and finance, strengthening the role of the Bank of Uganda and other relevant regulatory bodies in monitoring Islamic financial institutions and ensuring their compliance with both national laws and international Islamic finance standards, implementing training programs for both financial institutions and regulatory bodies on the principles of Islamic banking and Shariah compliance, introducing clear, accessible, and effective dispute resolution mechanisms for Islamic banking transactions to build investor and customer confidence and avoid legal conflicts, increasing public awareness of Islamic banking products and services to reduce financial exclusion and enhance the accessibility of Sharia-compliant financial services for those who prefer them.
Description
A dissertation submitted to the Directorate of Research and Graduate Training in partial fulfilment for the award of the Master of Laws Degree of Makerere University
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Citation
Najjemba, L. L. (2026). An analysis of the legal and regulatory challenges in the implementation of Islamic banking in Uganda; Unpublished Masters dissertation, Makerere University, Kampala.