He has played a pivotal role in the seamless acquisition of Top Finance Bank by Salaam African Bank S.A, headquartered in Djibouti and subsequent transition into a fully-fledged Islamic financial institution and rebranded as Salaam Bank Limited. He also led the bank to obtain the first Islamic Banking License from the Bank of Uganda on September 8th, 2023.
He holds over 13 years of executive leadership and operational expertise. He has undergone rigorous training at esteemed institutions such as the CEO Summit, Strathmore Business School, Busara Leadership Partners in South Africa, and the Rise School in Nairobi among others. I am deeply passionate about Governance, Risk Management, and Technology within the financial services sector.
In this deeply enlightening interview with CEO East Africa Magazine, Michael Mande, the Managing Director and CEO of Salaam Bank Ltd, Uganda’s first Islamic banking financial institution shares, almost everything there is to know about Islamic banking, and how it is different, as well as similar to conventional banking and the kind of services you can expect from Salaam Bank.
About Salaam Bank- its roots and key strengths as well as key facts and figures. What do you stand for? Why should Ugandans be happy that Salaam Bank is here?
Salaam Bank Limited is a fully-fledged Islamic Financial institution with its parent Bank seated in Arta, Djibouti and therefore a member of the Salaam Group.
Its establishment followed the acquisition of Top Finance Bank Limited on May 23, 2022, leading to the birth of the first full-fledged Islamic bank in the Ugandan banking sector after the Bank of Uganda on September 08, 2023, issued it a license to operate as the first Islamic Financial Institution.
Salaam Bank strives to be the pioneer of ethical financing, Shariah compliant services through the use of state-of-the-art technology and up-to-date financial services to all Ugandan Nationals.
We pride ourselves in offering high-quality, innovative and Shariah-compliant financial solutions among other banking operations and services that are fully adherent to the best business ethics. Our customer-focused mentality has positioned the bank to deliver not only personalised banking experiences but also fast services and respond directly to customer demands.
With Salaam Bank, Ugandans should expect to experience a bank that is dedicated to the best business ethics and focused on continuously improving the value and accessibility of its services in an effort to improve the lives of others in their community.
Our goal is to expand financial inclusion to all Ugandans who could either not afford the rates offered by the conventional banking system or found the system to be against their beliefs since it carries an element of Riba.
Ugandans should be certain that they will benefit from our Profit and Loss sharing (also called participatory financing) whether as a business enterprise or a person which/who has obtained financing from an Islamic bank/financial institution. As financing is repaid, the bank collects some agreed-upon percentage/ratio of the profits (or deducts if there are losses) along with the principal of the financing. Unlike a conventional bank, there is a fixed amount of profit collected along with the principal of the financing.
Furthermore, risk sharing offers both entrepreneurs and investors incentives to be truly engaged in productive economic activities, wherein entrepreneurs will be encouraged by the prospect of seeing their ideas transformed into business entities, and financiers will be obliged to assess the risk involved more cautiously, and effectively monitor the use of funds by the entrepreneurs.
With Islamic Banking, we will be able to form partnerships with companies or call them joint ventures (Musharakah). Musharakah is a joint enterprise or partnership structure in Islamic finance in which two or more persons combine either their capital or labour, forming a business in which all partners share the profit according to a specific ratio, while the loss is shared according to the ratio of the capital contribution. Since Islamic law (Sharia) does not permit profiting from the interest earned from lending, Musharakah allows for the financier of a project or company to achieve a return in the form of a portion of the actual profits according to a predetermined ratio. However, unlike in conventional banking, the financier also will not share in any losses, should they occur.
The Sharia principles allow us to promote financial justice and that wealth must be generated from legitimate trade and asset-based investments. (The use of money for the purposes of making money is expressly forbidden), investments should also have a social and ethical benefit to wider society beyond pure return, risk should be shared and all harmful activities (haram) should be avoided.
Islamic Finance also facilitates financial deepening by increasing the depth and breadth of intermediation, extending the reach of the system and making it very attractive not only to Muslims but also to non-Muslim communities as it broadens the range of available options, particularly for SMEs.
For the uninitiated, how different is Islamic Banking from the normal banking we have been used to? How does it for example solve some of the industry challenges such as high interest rates for example?
From the economic viewpoint, Islamic banks have a similar role to that of conventional banks which are, to do financial intermediation and provide a host of other products and services including giving financing, collecting cheques, money remittance, providing guarantees, dealing in foreign exchange, and assisting the client to invest. In addition, both conventional and Islamic banks use the funds collected as deposits to provide financing to other clients and invest for a return.
The uniqueness of the Islamic bank comes from the fact that all transactions need to be in accordance with the Islamic Sharia Principles. The Islamic bank provides all common commercial banking services within the Sharia framework. Prohibition of interest or Riba, is a fundamental difference from the conventional banks, separately, in Islamic Finance, there is no speculation, it does not finance prohibited activities like gambling and alcohol which are deemed harmful to society.
In Islam, money is only a medium of exchange, a store of value, a unit of exchange and a factor of production used for business activities. In contrast, conventional finance considers money as a commodity, with intrinsic value, allowing money to earn more money, which is interest or Riba in Islamic Finance.
Riba is the increase in the principal amount of a loan, calculated based on the amount of the loan and the period for which it was lent. In Islam, all forms of interest are prohibited, small or large, simple, or compound. Prohibition of interest is the essence of the Islamic financial system. However, simply describing the Islamic financial system as merely interest-free does not show a true representation of the system. Besides the prohibition of interest, it is also characterised by other principles including the protection of property rights, individuals’ duties and rights, risk sharing and promotion of entrepreneurship, prohibition of speculative behaviour, and the sanctity of contractual obligations.
Modern Islamic banks aim to provide an efficient financial system through the process of financial intermediation, reliable payment systems, effective links to the money and capital markets, standardisation, and globalisation of the industry. All financial arrangements in the Islamic banks are linked to assets in the real sector, thus providing value addition to the real economy and sharing the risk and return.
Islamic banking allows depositors to become partners in businesses rather than being creditors, where both the provider and the user of funds share in the risks and returns of the business while in conventional banking both the depositor and the bank earn fixed interest, with the risk of loss belonging only to the borrower or entrepreneur. In contrast, in the case of Islamic banking depositors, banks and borrowers or entrepreneurs all share in the risks and returns of the business. Consequently, Islamic commercial banking is conceived as a value-based banking system which should be based on principles of Islamic ethics, values, and social and Islamic legal norms.
So then in that case, what are the key similarities between conventional banks and Islamic banks?
The similarities between conventional and Islamic banks are as follows.
- Financial Services: Both conventional and Islamic banks offer a wide range of financial services, including savings and checking accounts, loans, credit cards, and investment products. Customers of both types of banks can access these services based on their financial needs.
- Regulation: Both conventional and Islamic banks are regulated by financial authorities in their respective countries. They need to comply with the regulatory standards and guidelines set forth by the government and central banking institutions to ensure the stability and integrity of the financial system.
- Profit Motive: Both types of banks aim to generate profits for their shareholders. They engage in various financial activities and investments to earn revenue, which can be used to cover operational costs, provide returns to shareholders, and strengthen their capital base.
- Customer Focus: Both conventional and Islamic banks focus on meeting the financial needs of their customers. They offer services such as personal loans, mortgages, business financing, and wealth management solutions to cater to individual and corporate clients.
- Risk Management: Both types of banks employ risk management strategies to mitigate financial risks associated with lending, investments, and market fluctuations. Risk assessment, credit analysis, and portfolio diversification are common practices in both conventional and Islamic banking.
- Use of Technology: Both conventional and Islamic banks leverage technology to enhance customer experience, improve operational efficiency, and provide online banking services. Mobile banking apps, internet banking platforms, and electronic fund transfers are widely used by customers of both types of banks.
- Global Presence: Conventional and Islamic banks can be found in various countries around the world. They operate internationally, serving diverse customer bases and contributing to the global banking industry.
| No. | Basis of difference | Conventional Banking | Islamic Banking |
| 1. | The financing is linked to the real sector and the return of the financial transactions arises from the real economy. | Operates based on risk transfer from the depositors and the bank to the borrowers or entrepreneurs. | Operates based on risk sharing between the depositors, bank and borrowers or entrepreneurs. |
| 2. | Economic versus social focus | The time value of money, as in interest, is the price of money | Concentrates on economic well-being and profit maximization principles. |
| 3. | Price of money | Risk-taking | Money is not a commodity and has no price |
| 4. | Fixed income versus profit and loss sharing | All financial transactions need to be either asset-based or asset-backed, with an exchange of goods and services, making the system more stable. | Depositors of investment accounts are partners of the bank and share in the profit and loss; these accounts have characteristics of both debt and equity. |
| 5. | Income | The primary income of the bank is the interest earned from the debt financing it provides, separated from the real economy. | Depositors receive a fixed interest and deposits are considered a liability. |
| 6. | Asset link | Transactions can be purely financial, with no compulsion to link to real assets. | No penalty can be charged in case of default, except the cost for recovery of repayments, any additional penalty if charged must be donated to charity. |
| 7. | Bank–client relationship | The bank–client relationship is that of creditor and debtor. | Depending on the type of contract, could be of partners, principal and agent, investor and manager, buyer and seller, lessor, and lessee. |
| 8. | Default payment | Default to repay is penalized by compounding interest | No penalty can be charged in case of default, except cost for recovery of repayments, any additional penalty if charged must be donated to charity. |
| 9. | Restrictions | No restrictions on the investments of funds or projects financed | Only Sharia-compliant investments and projects can be financed |
Following the granting of the license, what can we expect in the next 1 -3 years?
Following the granting of the license, we plan on doing as much sensitisation as possible, building strategic partnerships, a well-distributed network of branches both in the central and surrounding regions, actively deploying robust technologies, ATM Cards both Visa and MasterCard used across the country and work with agents under ABC, InterSwitch and others to ease our customers’ access to our services.
What is your key message to stakeholders and Ugandans?
For the last few decades, Ugandans have been experiencing several episodes of financial crises in the markets, exclusions that have mainly been caused by the level of risk associated with the current financing options, including risks being entirely borne by the customer, profit maximisation among others which have increased the overall cost of financing.
For the Muslim community, it has been a matter of values and religious principles where they have been lacking an Islamic financial institution to satisfy their religious obligations.
Salaam Bank is here now to promote altruism, economic activity, and social responsibility operating in accordance with Islamic law or Sharia. Therefore, we will not price money, we will eliminate interest, we will share the risk, we will do away with excessive penalties, and all our transactions are assets-based/ assets-backed, and most importantly community oriented based on ethical, social and moral parameters as guided by the sharia.