Islamic finance, which operates according to Islamic laws (Sharia), has experienced unprecedented growth globally. Value-aligned financial products and services have been on the rise for years and given that almost 25% of the globe is Muslim, it is no surprise that Islamic finance has been spreading rapidly.

With assets amounting to USD 3.96 trillion as of 2021 and a projected rise to USD 5.9 trillion by 2026, the sector represents a thriving segment of the financial industry. Tanzania and other East African countries are poised to become hubs for Sharia-compliant financial services, offering lucrative opportunities for investors and financial institutions.

Islamic finance has a rich history dating back to the 1940s, with the first attempts at Islamic banking in Malaysia. The sector saw significant developments in the 1960s and 1970s with the establishment of pioneering institutions such as the Tabung Haji in Malaysia and the Islamic Development Bank. By the 1980s, Islamic banking had spread to countries like Qatar, Bangladesh, Malaysia, and the UK.

Islamic finance is built on three core principles:

1. Prohibition of Interest (Riba): Instead of charging interest, Islamic financial institutions engage in profit-sharing, ensuring that both the institution and the customer share the risks and rewards.

2. Prohibition of Gambling (Maysir): Zero-sum contracts are avoided, promoting win-win scenarios where both parties can benefit.

3. Ethical Investment Focus: Investments are made in ethical ventures, excluding businesses dealing in alcohol, pork, or interest-based activities, even if they are profitable.

East Africa is embracing Sharia-compliant finance, with over 30 registered Islamic financial institutions across the region. In Tanzania, the sector has grown since the introduction of Islamic banking in 2009. The country now boasts one Islamic bank and two Takaful operators, providing a range of Sharia-compliant financial services. Other countries that have embraced Islamic finance include, but are not limited to:

• Kenya: Launched Islamic banking in 2007. Currently, there are 3 Islamic banks and 2 Takaful operators.
• Uganda: Entered the market in 2023 with one Islamic bank.
• Sudan: A pioneer with thirty-seven Islamic banks and fifteen Takaful operators.
• Egypt: Has three Islamic banks and eleven Takaful operators.
• Morocco: Introduced Islamic banking in 2017 with five banks and three Takaful operators.

The rapid growth of Islamic finance presents significant opportunities, particularly in under-served markets. Tanzania, with its favourable government policies and growing Muslim population, offers a promising environment for Sharia-compliant financial services. Investors can explore various avenues, including Islamic pension funds, Takaful insurance, and Sukuk issuances.

As the demand for Sharia-compliant financial services continues to rise, Tanzania stands out as a key market in East Africa. At Africa Insight Advisors, we are dedicated to guiding investors and companies through the business and investment landscape across East and Southern Africa, helping them capitalize on the immense potential in this region.

For more information on how to navigate the Islamic finance market in Tanzania, visit our contact page.

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