Tanzania has a small but growing Islamic finance sector. If it is developed further it could make a big contribution to the country's economy.
Tanzania's industrialisation agenda stand to benefit from financial opportunities offered by Islamic financing facilities and already the government of President John Magufuli is being urged to avoid debts from traditional creditors by going for development loans and grants offered by Islamic financial institutions.
Islamic finance or sharia-compliant finance refers to financing activity that complies with sharia (Islamic law) and its practical application through the development of Islamic economics.
Sharia prohibits riba (interest paid on loans). Investment in businesses that provide goods or services considered contrary to Islamic principles (e.g. pork or alcohol) is also considered as haram ("sinful and prohibited"). These prohibitions have been applied in varying degrees in Tanzania to prevent un-Islamic practices among the Muslim community.
Growth of Islamic banking facilities
Islamic banking facilities were introduced in Tanzania in 2008 when the Bank of Tanzania licensed KCB-Tanzania to offer banking services in line with Islamic principles. KCB-Tanzania was followed in 2010 by Stanbic, National Bank of Commerce (NBC), Zanzibar People's Bank, Diamond Trust Bank (DTB) and Amana Bank, which is the only fully fledged Islamic banking facility in the country.
However, Islamic banking facilities still make up only a fraction of the country's banking assets. They they have not yet attracted as many customers among the Muslim community as might have been expected, and the government and its various institutions still prefer to seek development grants and loans from the traditional Western creditors.
Because of fear of going against Islamic teachings, the majority of Muslims in Tanzania do not use banking services in securing business credits and loans and end up languishing in poverty.
Now, however, financial and economic experts are arguing that both government and individual investors should seek development and business loans/credits from countries and banking facilities operating on Islamic business principles.
Saudi Arabia, Kuwait, United Arab Emirates, Turkey, Egypt, Morocco, Malaysia, Iran and members of the Gulf Cooperation Council (GCC) together with Kuwait Fund are some of the countries offering development and business credits/loans in line with Islamic principles.