Zukuka Finance is using Islamic Banking principles to save borrowers

A quick scan through the daily newspapers will show you how many people are losing their businesses to financial services providers for failure to service a loan. Financial services providers usually don’t care if you made a profit or a loss on the money they gave you; they just want their money back plus the interest accrued. If you fail, they will advertise and sell the collateral.

It is this unfortunate reality that partly inspired Farid Gava Kakande and four others to start Zukuka Traders Limited, a digital saving and loan product based on the Islamic banking system.

“We have two fundamentals in Islam that drive finances; Profit and Loss Sharing – this is mainly for businesses…We share the profit and loss as long as the loss is not bound to the clients. We consider the loss as natural. The second principle is interest-free loans. At Zukuka, we give loans without expecting any interest. If you take Shs 500,000, we expect the same amount on return,” Kakande, the Zukuka Chief Executive Officer, says.

On the technology side, Zukuka came to solve the problem of manual processes within Saccos because everything is digitized. Members can join using their Zukuka Mobile App, Website, and social media handles.

In the two years of operation, Zukuka has attracted more than 800 clients saving daily, weekly, or monthly depending on their earnings.

“We try our best to reach about 75 million monthly in savings. For credit facilities, we give an average of 10 members monthly and expect a payback of 65 percent in loans,” he says.

He adds that the Zukuka Mobile App allows users to track transactions in real time. Clients can also carry out deposits on their Zukuka accounts via mobile money.

Meanwhile, Hassan Kawooya, one of the Zukuka members says it is the principle of zero interest that has impressed him most.

“I joined Zukuka Finance two years ago but I am very happy with it because of the reliable and efficient service. Our savings are safe and when you need a loan, it comes with no interest. We just have to share profits, if any,” he says, noting that even countries like Uganda are struggling to finance national budgets because of the high interest they have to pay to their creditors. 

40 Days 40 FinTechs

Zukuka Finance is a fully registered Sacco under the Ministry of Trade, Industry, and Cooperatives and regulated by the Uganda Microfinance Regulatory Authority.

However, Kakande says people’s uptake of digital innovations is still a stumbling block in Uganda.

“People are illiterate about these technologies. We are doing our best to carry out training for our members. People also think technology involves a lot of fraud. For us, when a customer wants to withdraw money, we always request for a [secret] code to avoid fraud and embezzlement of funds,” he says.

He further appreciates initiatives such as 40 Days 40 FinTechs that are shining a light on emerging players in the FinTech space which is one way of building confidence among end-users.

“This initiative has helped giant companies to interact with SMEs. This has helped to build a relationship in business which eventually leads to economic growth,” he says.

Now in its fourth season, HiPipo’s 40 Days 40 FinTechs initiative has become a household name in the financial technology space of the East African region. In the last three editions, more than 100 FinTechs have been showcased, highlighting stories changing people’s lives, especially in the under-served sectors.

“This season we are happy to show the impact stories of these innovations. The likes of Zukuka are facilitating financial inclusion because we believe that in order to create real change, the cost of credit should be reduced significantly. And that is what Zukuka has done through their implementation of Shariah-compliant finance principles,” noted Innocent Kawooya, the CEO of HiPipo.

Zukuka Finance is participant number five in the 40 Days 40 FinTechs initiative, season four organized by HiPipo in partnership with the Level One Project, Mojaloop Foundation, INFITX, Cyberplc Academy, Ideation Corner, and Crosslake Technologies and generously supported by the Bill and Melinda Gates Foundation.