Tanzania lacks an Islamic banking regulatory framework and the situation affects investors in the field, an executive has said.
“Such a framework is vital for managing Islamic banks and identifying elements that are different from conventional banks. We lack Treasury instruments for speeding up investments and governing our banks,” Amana Bank Limited managing director Muhsin Salim Masoud told BusinessWeek recently.
Moreover, he said, the country was short of experts in Islamic banking. However, he has commended the government for allowing Islamic banks to operate in the country. According to him, it is vital for the country to hasten the formation of Islamic banking instruments to guide potential investors.
He stresses that under Sharia, Islamic financial institutions are not allowed to have interest rates components in their products as is norm in conventional banks.
For example, if a person wants to buy a car worth Sh20 million, an Islamic financial institution does not offer a loan and charge an interest rate.
Instead, it will buy the Sh20 million car and sell it to the person at Sh21 million.
According to him, Islamic banks are allowed to trade and not seek interest rates.
According to him, Islamic microfinance institutions are also good tools for social development and without the treasury instruments the banks cannot go far.
However he said they had been facing challenges in operating insurance companies in Zanzibar because the government had not enacted laws for managing such institutions.
He explained that the process started in 2009 under the Zanzibar commissioner for insurance but to date nothing is clear of what is happening.
The People’s Bank of Zanzibar director for Islamic banking division, Mr Said Mohamed, said before the coming of Islamic financial institutions the majority of Muslims took risk of keeping money at home.
According to him, Tanzania has a population of 45 million according to the 2012 census and only about a quarter of them access financial services especially banking.
He said until 2008 the only banking system prevailing in the country was conventional and many Muslims did not have bank accounts because of their religious faith.
“Islamic financial institutions started in 2011 and up to date there are five operating branches and one in Mtwara is expected to be opened soon,” he said.
The Bank of Tanzania in recent years has been promising to put in place regulations in Islamic Banking but it is yet to do so.
Credit: All Africa