Islamic banking has emerged as a new reality in the Tanzania financial scene in which case the Bank of Tanzania (BoT) needs to create a conducive atmosphere to positive service delivery in the new field, Zanzibar President Dr. Ali Mohammed Shein has declared.
President Shein made this appeal in Dar es Salaam officiating at an inauguration of the third branch of the People’s Bank of Zanzibar (PBZ) at Lumumba/Mahiwa Street in Kariakoo area, whereby he decried attitudinal indifference of Tanzanian customers about Islamic banking services.
“This is a non-religious bank open to those who abhor interest rates as it is prohibited in the holy book, the Qur’an but if you love interest rates, this bank is not for you,” said Dr. Shein.
With a population of over 40 million, statistics show that less than five million Tanzanians have access to banking facilities, which calls for robust awareness creation and innovation, the President asserted.
"These indicators point to the tremendous potential of this market niche which has previously been untapped," he said. “Customer attitudea toward a product or service is influenced by a matching of the product or service user image with the customer’s self-concept, and here let me commend PBZ endevours that it has become acceptable to BoT,” he said.
Islamic banking, he noted has become a substantial and the fastest growing industry during the last five years. It has followed Islamic transaction rules and principles (Sharia’h) to carry out their business and in accordance with Sharia’h principles, any payment or receipt of interest is strictly prohibited.
Still, the Islamic bank offers more or less the same products and services as those offered by conventional banks, such as current accounts, credit cards, investments in securities and cheque collection.
Juma Amour, the PBZ managing director, said during the launch that gradually Islamic banking is starting to play an important role in the overall Tanzanian financial market. According to Amour, since 2006 the Islamic banking industry with PBZ has been growing at an average of five percent per annum in terms of assets.
“PBZ banks cater for customers who want to follow Islamic rules on avoiding direct payment or earning of interest, which are viewed as usury under Islamic law,” he said.
Islamic banking refers to a system of banking which is consistent with the Shari’ah (Law), and guided by Islamic economics, as Islamic law prohibits the payment and collection of riba (interest or usury).
The main argument against interest is that money is not used as a commodity with which to make a profit but that it should be earned on goods and services, not on the control of money itself.
Islamic Banking is thus based on ethical principles as the Shari’ah allows all economic activities in the framework of protecting the public interest and safeguarding it.
An individual may make a profit from doing business but when this is earned from just giving out money it runs against Islamic ethics and morality, so it is outlawed.
In addition, for an investment to be legitimate, one of the most important requirements is that its outcome must involve investment transactions and enable the Islamic financial institution (IFI) to state what it expects to make in profit. However, this cannot be determined as a certainty nor can one commit oneself to it or bear any loss sustained, it was further noted.