Calls for stronger regulation as Islamic finance industry grows

Yet, without a robust regulatory framework, experts caution, the industry risks losing momentum.

The turning point came in 2022, when KCB Bank Tanzania launched the country’s first public Sukuk, or Islamic bond. The offering exceeded its fundraising target by 10 percent, signalling both appetite and trust in the instrument.

“That was a moment of proof. It showed that this is viable and that there was a real need for it,” said Mr Amour Muro, Head of Islamic Banking at KCB.

Since then, Tanzania has witnessed more than 10 Sukuk issuances, including the quasi-sovereign Sukuk issued by the Zanzibar government in April 2025 — the first by a government in East and Central Africa. CRDB Bank followed with its Albarakah Sukuk, the largest corporate issuance to date.

But while issuance volumes are rising, Mr Muro emphasised that policy reforms have been pivotal in enabling these instruments.

He noted that multiple amendments to Tanzania’s Finance Acts, alongside the publication of Sukuk guidelines in 2023, have helped, but further reforms are required to strengthen the sector.

“We now expect a dedicated Islamic banking policy to be finalised. That will be a major step forward. A single guiding document from the Bank of Tanzania will provide clarity for banks, asset managers and investors,” Mr Muro said.

According to him, Tanzania is on the right track, with the Bank of Tanzania allowing non-interest banking windows and the Capital Markets and Securities Authority (CMSA) issuing Takaful and Sukuk guidelines.

International institutions have also supported the sector. Tanzania has worked with the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) in Bahrain — which sets global standards for Shariah-compliant products — as well as with the World Bank to size opportunities and harmonise frameworks.

Locally, the Centre of Islamic Finance Consultation Advice (SIFCA) has played a crucial role in advising the government and regulators.

Yusra Sukuk Company Ltd’s chief executive, Sheikh Mohamed Issa, warned that significant gaps remain, particularly in capital markets.

“There are currently no specific rules for Islamic collective investment schemes (iCIS) or Islamic real estate investment trusts (iREITs),” he said.

“That means halal funds are forced to operate under conventional frameworks, which undermines Shariah compliance,” Sheikh Issa added.

The Dar es Salaam Stock Exchange (DSE) also lacks Shariah-compliant listing rules, creating uncertainty for trading Sukuk, halal funds, or Shariah-screened shares. However, Sheikh Issa acknowledged that DSE management is aware of the issue and is working on solutions.

Tax policy reforms have helped ease some challenges, but have not fully addressed them. Mr Muro pointed out that without tailored tax rules, Shariah-compliant products were previously exposed to double taxation risks.

“The treatment of VAT when intermediating Islamic products has now improved,” he said, adding that adjustments must be continuously updated as new products emerge.

The absence of Shariah-compliant reporting and auditing standards within Tanzania’s legal framework also raises questions about credibility.

The ecosystem effect

SSC Capital chief executive and seasoned investment banker, Mr Salum Awadh, said the expansion of Islamic finance must be viewed holistically.

“Islamic finance growth must be looked at from an ecosystem perspective,” he said.

“The ecosystem includes banking, capital markets, insurance (Takaful), social finance, fintech, policy framework, talent, microfinance, and public awareness.”

That ecosystem is already taking shape across multiple fronts.

In banking, the number of institutions offering Islamic services has grown from just two to five, including Amana Bank, KCB, PBZ, NBC and CRDB.

“Total assets have risen from about two percent to more than five percent of the overall banking industry,” Mr Awadh said.

Insurance has also expanded, with two licensed companies now providing Takaful services alongside a growing network of brokers and agents.

In the capital markets, more than 10 Sukuk have been issued so far, including Zanzibar’s quasi-sovereign Sukuk — the first of its kind in East and Central Africa.

“Corporate Sukuk issuances alone have raised more than Sh70 billion, while Zanzibar’s programme is targeting over Sh1 trillion,” he added.

Tanzania also has two licensed collective investment schemes — Alpha Halal Fund and Imaan Halal Fund — along with specialist dealers such as Yusra Sukuk and Shirkah, the latter a fully fledged halal asset management firm.

Mr Awadh cautioned that the sector still faces a talent bottleneck.

“We still have a shortage of Islamic finance professionals and Shariah scholars. The growth we are seeing will demand more of them,” he said.

He added that public awareness remains a critical issue.

“Many people still do not know how Islamic finance works or how it can benefit them,” he said.

Initiatives such as monthly Islamic finance debates, annual conferences, and specialised radio and television programmes are helping to bridge the gap, but Mr Awadh believes much more needs to be done.

Islamic finance consultant Mr Abdallah Ndele agreed, saying the sustainable growth of the sector will depend on greater investor education, more innovative product development, and regulatory reforms that provide a clear and competitive framework for Islamic finance within Tanzania’s financial system.

“With the right policy adjustments, Tanzania can position itself as a regional hub for Islamic capital markets, leveraging both domestic demand and regional momentum,” Mr Ndele said.