Islamic finance in Tanzania is still at a nascent stage, operating mainly in the banking space, with no investment products trading in the capital market and no Islamic funds. The regulations for Takaful are yet to be approved, at least for the industry to start its operations. Social finance and microfinance still only account for a fraction of the overall microfinance industry in Tanzania.
Tanzania has one fully-fledged Islamic bank, Amana Bank, and three other commercial banks operating Islamic windows — NBC Bank, KCB Tanzania and People’s Bank of Zanzibar. Approximately, the total value of Islamic assets is below 5% of the total banking industry, and the numbers are almost the same or less for deposits, number of customers and branch network.
Review of 2020
The offering banks still operate without an Islamic banking regulatory framework. The low uptake is still largely due to the lack of knowledge and awareness of the market in using Islamic banking products and services.
Tanzania is yet to see any product trading on the bourse, from Sukuk to equities. The initial launch of the Shirkah Sharia Index is the only successful initiative made in the market which will start tracking five listed stocks on the Dar es Salaam Stock Exchange.
We are yet to see the first Islamic fund operating in the market, whether mutual funds, venture capital funds or just generalist investment funds.
Microfinance has been around in Tanzania for some time, mostly driven by a savings and credit cooperative society (saccos) called Tampro Saccos. Tampro is a self-help organization in which a group of people stock their savings and offer financings to their own members. This financial cooperative organization has already supported hundreds of its members through Qard Hasan loans, a recently started Murabahah financing. Through Tampro, many Tanzanian youths and women are seen purchasing motor vehicles for business and job purposes.
Yetu Microfinance Bank is a listed conventional microfinance bank in Tanzania that recently launched an Islamic window with plans to grow the window to meet the huge untapped market needs.
Preview of 2021
We have seen indications of the two largest banks in Tanzania, namely CRDB Bank and NMB Bank, showing an interest in Islamic banking; this will be a game-changer if they do.
The regulations for launching Takaful have already been prepared and are only waiting for the government’s approval so hopefully this will be accomplished in 2021.
Takaful Insurance of Africa has already set up shop and invested in human resources and office structure, and is eagerly looking forward for the regulations to be approved so that it can hit the ground running.
The recent formation of Awqaf Tanzania as the industry body is an indication of a promising future that is to come. Awqaf Tanzania seeks to organize the Islamic finance industry by bringing all players together equipped with knowledge on technical advisory. The organization is aiming to launch a cash Waqf option for retail contributors countrywide.
The People’s Bank of Zanzibar has already pioneered this and we hope to see further growth in the near future.
Islamic finance is not in the mainstream yet, so those with knowledge of it are still only a handful. The key players include CIFCA, Abrar Consult and Shariah scholars body Hayatul Ulamaa.
The Centre for Islamic Finance, Compliance and Advice is expected to be an active player in 2021 through advisory, education and awareness programs as well as an advocatory policy, overseeing the voluntary Shariah compliance of all industry players in Tanzania.
Waqf is becoming increasingly popular in Tanzania, not as a new development as it has been in the country for decades, but understanding and awareness of Waqf are increasing and the need to manage Waqf assets professionally is also increasing.
With the recent launch of Awqaf Tanzania, the Shirkah Sharia Index and the Islamic window by Yetu Microfinance Bank as well as the frequent education and awareness activities, there are hopes for the promotion, development and growth of the Islamic finance industry in Tanzania.
Tampro Saccos still needs to grow its balance sheet by partnering with existing banks that offer Islamic financing, and it also needs to recruit more members nationwide and deploy other products, especially Bai Salam, for the rural population accounting for roughly 75% of the country’s population. It should also be heavily involved in agriculture.
We also see other players launching various efforts to increase awareness of Islamic savings schemes, and new ones are being formed. We anticipate seeing more groups being launched in 2021 and beyond.