IFN Country Analysis – Tanzania

The United Republic of Tanzania’s Islamic finance and banking industry has had an eventful couple of years, having welcomed several landmark Islamic issuances, new Islamic finance and banking entities and most recently, the first-ever Takaful operator in the country. NESSREEN TAMANO writes an overview of the Tanzanian Shariah finance landscape.

Economy
Tanzania’s Muslim population makes up around 35% of its 59.05 million people, marking the potential of Islamic finance and banking in the country. In 2020, it was upgraded into a lower-middle-income country status (from its previous low-income country status), reflecting Tanzania’s sustained macroeconomic stability, which has in turn supported its growth, according to the World Bank.

Despite some political tensions in the country, it has a diversified economy that focuses on construction, agriculture and transport, which account for the majority of its growth, recording a GDP growth of 4.6% in 2022.

Regulatory framework
There is no dedicated legislation or framework for Islamic banking and finance in Tanzania; the sector is instead governed by the same regulations as conventional banking and finance. As the existing regulations do not actively accommodate Shariah compliant banking, local banks are not able to introduce Islamic products that the existing legislation does not cover.

In 2020, however, Bank of Tanzania started engaging local and international industry practitioners to get feedback for its efforts to establish a regulatory framework for Islamic banking and finance. The central bank has been a member of the IFSB since 2016.

The Capital Markets and Securities Authority meanwhile is working on the guidelines for Sukuk issuance in the country.

Banking and finance
The African nation has only one fully-fledged Islamic bank — Amana Bank, which was established in 2011 as the first in the country, and which currently operates eight branches nationwide.

Local banks National Bank of Commerce (NBC) and People’s Bank of Zanzibar, as well as foreign banks Stanbic Bank, Kenya Commercial Bank and Eximbank, all have Islamic windows. In 2019, Bahrain’s Al Baraka Banking Group announced plans to extend its operations in Tanzania and in 2021, the publicly listed CRDB Bank, one of the two largest banks in the country, launched its Islamic banking unit. A conventional microfinance institution, Yetu Microfinance Bank, also runs an Islamic window.

However, due to regulatory restrictions, establishing an Islamic bank in Tanzania has not been easy. NBC, for instance, launched its Shariah compliant financing product in 2010 but was unable to issue its first one until 2015.

Meanwhile, the Shirkah Sharia Index tracks Shariah compliant stocks listed on the Dar es Salaam Stock Exchange. It is expected to pave the way for the first Shariah compliant exchange-traded funds in the country. In 2022, investment firm SSC Capital launched Shirkah, a Halal investment platform that offers prescreened opportunities across equities, Sukuk, real estate, commodities and start-ups.

The Tanzanian capital market saw its first-ever Sukuk issuance in 2021, which was Shariah compliant microfinance company Imaan Finance’s Islamic paper worth TZS2.72 billion (US$1.06 million). The company went on to issue seven more Sukuk facilities, all oversubscribed, while KCB Bank Tanzania and Amana Bank both followed suit and raised funds through their respective debut Sukuk issuances in 2022.

Takaful
In 2018, the Tanzania Insurance Regulatory Authority started working on a new framework to accommodate Takaful and bancaTakaful products, which was expected to be published by the end of 2019. The guidelines for Islamic insurance were finally unveiled by the regulator in May 2022, welcomed by market players who have been waiting for this development for at least a decade.

The first-ever Takaful operator in Tanzania, ZIC Takaful, officially launched in September 2023. Other insurers that have applied for a Takaful license include National Insurance Corporation, Takaful Insurance Africa, and Azam and Mo Assurance.

Takaful brokers Yusra Takaful and ITFS also launched in 2023.

Education
Further demonstrating the healthy demand for Islamic finance, three academic institutions — Zanzibar University, the Zanzibar Institute of Financial Administration and the Muslim University of Morogoro — offer Islamic finance courses, from the certificate level to the postgraduate level.

Outlook
It has been a great few years for the Islamic finance and banking industry in Tanzania, and market players are optimistic that 2024 will be another great one, across all subsectors. There remains however much to be done from a legal and regulatory perspective, and awareness for Islamic financial products still needs to be increased.