By Dr. Temu

1. Introduction

For many years, Tanzania’s Islamic finance landscape operated without a comprehensive regulatory guideline dedicated to Shari’ah‑compliant banking. Despite this gap, several banks had already begun offering Islamic products through dedicated windows, supported by internal Shari’ah Boards and approvals from the Bank of Tanzania. Institutions such as RDB, KCB, NBC, PBZ, and Azania developed Islamic windows to meet customer demand, while Amana Bank remained the only fully fledged Islamic bank in the country.

This environment created a patchwork of practices with each institution interpreting Shari’ah governance, disclosure, and operational standards differently. The absence of uniform rules meant that compliance expectations varied, and customers lacked a consistent benchmark for evaluating Shari’ah‑compliant offerings. The introduction of the Banking and Financial Institutions (Non‑Interest Banking Business) Regulations, 2025 therefore marks a pivotal moment, bringing structure, clarity, and enforceability to a sector that had long relied on fragmented guidance.

2. Licensing and Establishment Requirements

The Regulations introduce a structured and transparent licensing regime for institutions seeking to operate non‑interest banking services. Any applicant must now demonstrate its capacity to conduct business in full compliance with Shari’ah principles. This includes presenting a detailed feasibility study outlining the proposed products, organisational structure, staffing, and technological systems capable of supporting non‑interest transactions.

For conventional banks, the Regulations require the establishment of a dedicated non‑interest banking unit at head office level. This unit becomes the central hub for policy development, compliance oversight, and coordination with the Shari’ah Advisory Committee. The requirement ensures that non‑interest banking is not treated as a peripheral add‑on but as a strategically governed business line.

3. Strengthened Shari’ah Governance Framework

One of the most transformative aspects of the 2025 Regulations is the formalisation of Shari’ah governance. Previously, Shari’ah Boards existed within institutions, but their composition, independence, and reporting obligations varied widely. The new framework standardises these elements by establishing the Shari’ah Advisory Committee, whose members must meet defined academic, ethical, and professional qualifications.

The Committee is responsible for advising the Board of Directors on all matters of Shari’ah compliance, reviewing new products, overseeing non‑permissible income, and submitting quarterly reports. Importantly, the Board must periodically assess the Committee’s performance and ensure its independence. This dual‑layer governance model aligns Tanzania with international standards, strengthening the credibility of Shari’ah‑compliant operations.

4. Transparency, Reporting, and Disclosure Obligations

The Regulations significantly enhance transparency by requiring institutions to disclose any instances of Shari’ah non‑compliance, the reasons behind them, and the corrective measures taken. Financial statements must now include detailed explanations of profit calculation methodologies, movements in Profit Equalisation Reserves, and the treatment of Investment Risk Reserves.

These disclosures ensure that investment account holders and the public have full visibility into how funds are managed. They also promote accountability, reduce information asymmetry, and reinforce trust in the integrity of non‑interest banking operations.

5. Profit Sharing and Investment Account Management

The Regulations provide much‑needed clarity on the management of profit‑sharing investment accounts, which are central to Islamic finance. Institutions must maintain accurate records of profits attributable to investment account holders and set aside reserves to cushion potential losses. These reserves must be disclosed in annual financial statements, ensuring transparency in how risks and returns are allocated.

This clarity is especially important for Mudaraba‑based investment products, where profit‑and‑loss sharing is a defining feature. The new rules protect customers and ensure that institutions manage investment accounts with discipline and fairness.

6. Treatment and Disposal of Non‑Permissible Income

Previously, banks relied on internal policies to determine how non‑permissible income should be handled. The new Regulations introduce a uniform and transparent process. Institutions must segregate non‑permissible income, donate it to approved charitable causes, and ensure that neither the bank nor its affiliates derive any benefit from the donation.

The process must be reviewed by internal auditors and approved by the Shari’ah Advisory Committee, creating a robust purification mechanism that aligns with global Islamic finance norms.

7. Enforcement and Penalties

The Bank of Tanzania now has a broader range of enforcement tools to ensure compliance. These include suspension of key banking privileges, restrictions on lending or deposit‑taking, disqualification of directors or officers, and even revocation of licences. These measures underscore the regulator’s commitment to ensuring that non‑interest banking is conducted with integrity, professionalism, and strict adherence to Shari’ah principles. Institutions must therefore invest in strong governance, compliance systems, and continuous capacity building.

8. Conclusion

In conclusion, while the 2025 Regulations provide a long‑awaited and commendable foundation for non‑interest banking in Tanzania, several structural weaknesses remain that may hinder the sector’s full maturation. The absence of a centralised national Shari’ah authority leaves room for fragmented interpretations across institutions, potentially undermining consistency and market confidence. The Regulations also offer only high‑level guidance on Shari’ah‑compliant product structures, creating uncertainty in the design and approval of key Islamic finance instruments such as Murabaha, Mudaraba, and Ijara. Additionally, the framework lacks detailed standards for Shari’ah audit and compliance mechanisms, weakening the assurance of ongoing conformity with Islamic principles. Consumer protection provisions tailored to Islamic finance remain limited, and the Regulations do not address the need for Shari’ah‑compliant liquidity tools or integration with the broader Islamic capital market. These gaps, while not diminishing the significance of the new framework, highlight the need for continued regulatory refinement to ensure that Tanzania’s Islamic finance industry grows with the depth, credibility, and competitiveness seen in more advanced jurisdictions.

Disclaimer:    The information contained in this legal update is for information purposes only and does not constitute legal advice, nor does it create an attorney-client relationship. For more information and professional legal counsel,

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