1.0 Introduction
The Bank of Tanzania (“BoT”) issued a new regulation titled The Banking and Financial Institutions (Non-Interest Banking Business) Regulations, 2025, published under Government Notice Number 88 of 2025 (the “Regulations”). The Regulations establish a legal framework for setting up a non-interest banking business in Tanzania and provide an opportunity for persons interested in operating Shari’ah-compliant banking businesses, which follow Islamic business transactions principles, to establish such entities. This article highlights the key provisions set out under the Regulations.
2.0 Conditions for Establishment of Non-Interest Banking Business dealing in Shari’ah compliant products
Any person intending to establish and operate a non-interest banking business in Tanzania dealing in Shari’ah-compliant products may either apply for registration and licensing of a financial institution that exclusively deals with Islamic banking, or establish a conventional interest-based banking business and offer non-interest banking as secondary line of business, through a dedicated branch or unit responsible for the non-interest banking business.
3.0 Application for a License to Operate a Non-Interest Banking Business
An application to conduct a non-interest banking business dealing in Shari’ah-compliant products must be submitted to the BoT in writing and be accompanied by a feasibility study report justifying the establishment of the business. The feasibility study report must include, among others, the proposed location of the non-interest banking window, the Shari’ah-compliant products to be offered and projected balance sheets and income statements for the first three years.
4.0 Corporate Governance and Administration of Non-Interest Banking Business
Banks and financial institutions operating non-interest banking businesses are required to have two key authorities that oversee their operations: the Board of Directors (the “Board”) and the Shari’ah Advisory Committee (the “Committee”). The Board is responsible for ensuring that the business operates in compliance with Shari’ah laws, while the Committee is responsible for providing Shari’ah advice to the Board regarding the non-interest banking business.
5.0 Mode of Financing of Non-Interest Banking Business
Banks and financial institutions operating non-interest banking businesses dealing in Shari’ah compliant products may finance such business through various structures, including equity participation, risk-sharing partnerships with customers and the holding and trading of tangible assets.
6.0 Profit-Sharing Requirements
A bank or financial institution operating a non-interest banking business that invests in profit-sharing investment accounts is required to maintain proper records of such accounts. A portion of the profit accrued prior to distribution must be set aside in a reserve account to cater for potential losses arising from projects financed through profit-sharing investment accounts.
7.0 Treatment of Non-Permissible Income
Non-permissible income generated by a non-interest bank or financial institution that does not comply with Shari’ah laws must not be treated as income of the non-interest banking business, and instead must be kept in a separate dedicated account, which is then disposed of by donation to persons in need or to charitable organizations registered and operating in accordance with the laws of Tanzania. The Committee is responsible for ensuring that the disposal of non-permissible income is carried out in accordance with the law.
8.0 Penalties for Non-Compliance
The Regulations provide for several penalties in the event of non-compliance, including: (a) prohibition from declaring or paying dividends; (b) suspension of access to the BoT’s financing facilities; (c) suspension of lending and investment activities; (d) revocation of the banking licence; (e) suspension from office of a defaulting director, officer, or employee; and other penalties provided under the Banking and Financial Institutions Act, Chapter 342, Revised Edition of 2023, among others.
Conclusion
The introduction of the Regulations marks a significant milestone in the development of Tanzania’s financial sector. These Regulations provide an opportunity for investors interested in Shari’ah-compliant finance to establish and invest in the financial market while ensuring the protection of investors, customers, and the public in general.
Godfrey Mollel- Associate
Note: This is not a legal opinion, and the contents hereof are not meant to be relied upon by any recipient unless our written consent is sought and explicitly obtained in writing.
