Islamic finance: Pioneers see hope despite legal challenges

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Dares Salaam

From just a banking window to a full-fledged bank and, now, bond, Islamic financing is growing in Tanzania – with pioneers seeing a bright future despite challenges.

The Sharia-compliant system started in 2008 when KCB Bank introduced an Islamic Banking Window.

But, today, there is a full-fledged Islamic Bank (Amana Bank), while some conventional banks like KCB Bank, People’s Bank of Zanzibar (PBZ) and the National Bank of Commerce (NBC) offer Is-lamic banking services. More banks are expected to rollout the services.

The Islamic financial system is based in Islamic principles of financial transactions entrenched in commercial dealings that focus on human relations.

Among the principles are prohibition of interest, excessive speculations and uncertainties, gambling, lack of transparency, dealings in impermissible and unfair distribution of wealth. Pioneers say the future is bright for the Islamic fi-nance in general after issuance of the first ever Is-lamic bond called Sukuk.

“Islamic banking and finance is set to grow in Tan-zania just as the minister of Finance and Planning, Dr Mwigulu Nchemba, said during the 7th Islamic Finance Summit held in Dar es Salaam earlier this year that the government of Tanzania would like to see our country becoming the hub for Islamic bank-ing and finance for east African countries,” said chairperson of the Centre for Islamic Finance, Compliance and Advice (CIFCA), Mr Aref Nahdi.

The non-profit organization fosters Islamic Banking and Finance in Tanzania and helps stakeholders in the industry to practice Sharia-compliant banking and finance.

CIFCA works with the government regulators such as the Bank of Tanzania (BoT) and Tanzania Insur-ance Regulatory Authority (Tira) as well as institu-tions offering Islamic Banking and Finance, aca-demic institutions and the media to raise public awareness and create institutional culture for Is-lamic Banking and Finance in the country.

The main concern with respect to Islamic banking in Tanzania is that there is currently no specific legal framework to cater for Islamic banking as well as resolution of legal disputes arising from Islamic banking. “This could be seen as hindering the progress of Islamic banking in Tanzania.

When the legal framework for this is set up, we anticipate an increase in Islamic banking custom-ers,” said Amreen Ayub and Tenda Msinjili of a global law firm Clyde & Co in an article recently published on the company’s website.

“Islamic banking and finance in our country started without any financial act amendment, regulation or even guidelines.

Nothing has changed so far. There-fore, the biggest challenges to Islamic banking and finance in Tanzania, in my view, is lack of financial act amendment to carter for these services or regula-tions as it has been done in other jurisdictions,” said Mr Nahdi.
CIFCA chairperson Aref Nahdi speaks during a past event.— The Citizen

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