IFN Country Analysis – Tanzania

The past year has been eventful for the United Republic of Tanzania’s Islamic finance and banking sector, with the capital market seeing its first-ever Sukuk issuance and the Shariah banking sector welcoming CRDB Bank’s Islamic business unit. NESSREEN TAMANO writes an overview of the country’s Shariah compliant finance sector.

Tanzania’s Muslim population makes up 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.

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, which regulates the Islamic banking industry alongside the conventional one, started engaging local and international industry practitioners to get feedback for its efforts to establish a regulatory framework for Islamic banking and finance. The Bank of Tanzania has been a member of the IFSB since 2016.

Banking and finance
The sub-Saharan African nation has only one fully-fledged Islamic bank — Amana Bank, which was established in 2011 as the first in the country. The bank has eight branches throughout the country, and in 2020, reported a decline in total assets at TZS202.85 billion (US$87.61 million), from TZS238.08 billion (US$102.82 million) recorded in 2019.

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.

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. Meanwhile, investment firm SSC Capital is in the process of rolling out Shirkah Invest, the first Shariah compliant robo-advisory platform in Tanzania.

The Tanzanian capital market saw its first-ever Sukuk issuance this year: Shariah compliant microfinance company Imaan Finance issued an Islamic paper worth TZS2.72 billion (US$1.17 million), which was oversubscribed by 36% — an indication of the market’s appetite for Islamic financial assets.

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 but is now expected in 2022.

There is healthy demand from the market — government-owned Zanzibar Insurance Company is preparing to offer Takaful products by applying for a Takaful license, and the National Insurance Corporation is planning to offer Islamic agricultural and microinsurance products to vendors.

Two other Tanzanian insurance companies — Azam and Mo Assurance — have applied for a Takaful license from the regulator, and Takaful Insurance of Africa is waiting for Takaful regulations to start operating.

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.

The past year has shown that with proper government and regulatory support, and more investments into the Islamic finance sector, Tanzania is a promising environment for Shariah finance to thrive. Industry players are optimistic that the sector will grow, and particularly with the recent developments in the field, including the increase in education and awareness initiatives for Islamic finance, more Shariah compliant transactions, deals and entities can be expected out of the country.

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