Islamic finance legal framework coming

Dar es Salaam. The government is now setting up regulatory frameworks for Islamic financing which is fast growing in the country. Currently, Tanzania has only one fully-fledged bank that provides only sharia-compliant financial products and services. But, three conventional banks have opened a window for Islamic banking.

However, there are no specific laws or policy that regulate the segment of the financial sector - except for ‘Islamic insurance’ - known as Takaful - whose regulations were approved early this year.

The Bank of Tanzania (BoT) regulates the Islamic banking window in the banks, doing so using the Banking and Financial Institutions Act of 2006, which does not specifically dwell on ‘Islamic banking.’

“We have issued a licence to one fully-fledged Islamic bank (Amana Bank), and given approval to three conventional banks (KCB Bank-Tanzania, People’s Bank of Zanzibar and the National Bank of Commerce) to offer Islamic banking services,” the central bank’s acting director of financial sector supervision, Mr Nassor Omar, told The Citizen.

He said the industry is still at its infancy stage and the issued license and approvals are based on the existing legal and regulatory framework because banks that offer Islamic banking also offer basic products such as deposits and financing.

The market share of Islamic banking deposits stood at 1.73 percent in September 2019, while its financing balance market share was 1.44 percent, according to Mr Omar.

The development of regulatory frameworks is bringing hopes to industry stakeholders who said it will create a clear operating environment.

A member of the Centre for Islamic Finance, Compliance and Advice (CIFCA), Sheikh Mohamed Issa, said in an email that the absence of s legal and regulatory framework is somehow hindering development of the industry.

“We are currently lacking the legal frameworks which are essential in facilitating and allowing investors to access credible and reliable forum for legal disputes,” he said. He wondered if the BoT would quickly develop the frameworks in order to offer those who use Islamic finance with the same degree of protection and incentives as those who use conventional financial services.

“The legal and regulatory frameworks would recognize the special features of Islamic finance, and find appropriate responses to them rather than simply applying solutions already devised for conventional banks to Islamic banking and financing,” he noted.

The Zanzibar Social Security Fund (ZSSF) managing director, Ms Sabra Machano, told The Citizen in November that people are still not aware of the regulations guiding the Islamic financing systems and the sharia itself.

“The term ‘Islamic financing’ for now sounds like the system is only for Muslims while it’s actually not. Laws and policies should clearly define it,” she said.

A former Controller and Auditor General (CAG), Prof Mussa Assad, said the Islamic banking system has not yet touched the lives of societies.

“Most of the products in Islamic banking were copied from commercial banks. They both focus on financing people with higher economic profiles for making profit,” he said. The Islamic banking system differs from that of commercial banks since it is based on the principles of Islamic economics of sharing profits and losses - and the prohibition of the collection and payment of interest.

For now, the BoT is still collecting views from local and international stakeholders to establish the requisite legal and regulatory frameworks.

BoT data shows that the industry is growing, with deposits of Sh393.57 billion for 208,363 depositors in September 2019 being above the Sh365.17 billion from 184,108 depositors recorded in same month last year.

The Islamic financing balance increased by five percent, to Sh256.18 billion, as at 30th September 2019, compared to Sh244.2 billion at the same period in 2018.