Unpacking Tanzania’s Landmark Islamic Banking Regulations

The Bank of Tanzania (BoT) gazetted new regulations aimed at promoting the growth, integrity, and stability of Shari’ah-compliant finance in Tanzania.   

The Banking and Financial Institutions (Non-Interest Banking Business) Regulations, 2025 (the Regulations), were issued under Government Notice No. 688 dated 19 December 2025.   

Through this instrument, the BoT formalises a segment of the financial sector that has experienced increasing activity, 

including the issuance of Islamic bonds, or sukuk, reflecting a maturing market and expanding financial inclusion. The Regulations set out comprehensive requirements on licensing and operational conduct, governance and Shari’ah-compliance frameworks, segregation of funds through distinct book accounts, permissible financing structures, the treatment of non-permissible income, and strict enforcement measures. Sanctions for non-compliance include suspension of dividend distributions, restrictions on lending operations, and potential revocation of licences. 

Under the rules, any institution seeking to operate as a fully-fledged non-interest bank must meet existing licensing requirements and prove it has the technical capacity, expertise, and systems necessary to ensure Shari’ah compliance. 

Conventional banks are also allowed to open non-interest banking windows, but only with prior approval from the Bank of Tanzania. To secure that approval, they must submit a feasibility study, adopt a Shari’ah Advisory Charter, and formally commit to keeping noninterest funds strictly separate from conventional banking operations. Banks are further required to establish dedicated non-interest banking units at the head office level to supervise operations and develop internal policies.   

Governance obligations are clearly defined. Boards of Directors carry ultimate responsibility for ensuring that all non-interest activities adhere to Shari’ah principles and must put in place risk management frameworks tailored to this specialised segment. Each institution must also appoint a Shari’ah Advisory Committee to guide the Board on compliance issues, review audit findings, and oversee the handling of non-permissible income. Internal audit functions are expected to include Shari’ah compliance reviews conducted by suitably qualified professionals.   

The regulations also outline approved financing models, allowing institutions to engage in risk-sharing arrangements such as partnerships, equity participation, and transactions involving tangible assets. Banks are required to maintain accurate records of profits due to investment account holders and may create reserves, including a Profit Equalisation Reserve, to cushion losses or stabilise returns. Any income found to be non-compliant with Shari’ah principles cannot be treated as bank revenue and must instead be isolated in a separate account and donated to charity, with no benefit accruing to the bank or its staff.   

In terms of reporting and enforcement, the rules mandate detailed financial disclosures, including explanations of how profits are calculated and the balances held in various reserve accounts. The Bank of Tanzania has broad enforcement powers in cases of non-compliance, ranging from suspending the acceptance of new deposits and blocking dividend payments to revoking licences or disqualifying directors.  

A detailed schedule of the regulations sets out the structure of Shari’ah Advisory Committees. Each committee must comprise three members qualified in Shari’ah, Islamic finance, or related fields. Members serve three-year terms and may not exceed three terms. To safeguard independence, individuals are barred from serving on more than one such committee in Tanzania at the same time.   

Islamic Banking: The Next Frontier    

The introduction of the Banking and Financial Institutions Non-Interest Banking Business Regulations, 2025, is expected to generate meaningful regulatory and market effects in Tanzania. 

At a regulatory level, the framework provides long-awaited legal clarity for Islamic and non-interest banking activities that had previously operated within the broader conventional banking regime. 

By codifying requirements on fund segregation, Shari’ah governance, internal audit, and the treatment of non-permissible income, the Bank of Tanzania strengthens supervisory oversight and reduces systemic and reputational risk. Clear compliance standards are also likely to enhance consumer protection and bolster confidence in the segment’s integrity.   

From a market perspective, regulatory certainty often serves as a catalyst for investment. A defined Shari’ah governance structure may increase the comfort of regional and international investors, particularly those from jurisdictions where Islamic finance is well established. This could support future sukuk issuance and cross-border partnerships, contributing to the gradual deepening of Tanzania’s capital markets. The formalisation of the framework also aligns with broader financial inclusion objectives by expanding access to banking services for individuals and enterprises that prefer non-interest-based financial products.   

The Regulations may also influence competitive dynamics within the banking sector. Conventional banks could seek to establish Islamic windows to retain market share or tap into new customer segments. Although compliance and governance costs may rise in the short term, the resulting product innovation and diversification of funding models may strengthen the sector’s overall resilience. Enhanced governance requirements, including mandatory Shari’ah Advisory Committees and specialised audit functions, may further elevate standards across the industry.   

Tanzania’s move mirrors developments in other jurisdictions that have formalised Islamic finance through tailored regulatory reforms. In Kenya, amendments to banking laws facilitated the licensing of fully fledged Islamic banks such as Gulf African Bank and First Community Bank. Nigeria introduced non-interest banking guidelines that supported the growth of Islamic banking institutions and the issuance of sovereign sukuk. Malaysia, often regarded as a benchmark jurisdiction, enacted a comprehensive standalone legal regime for Islamic financial services, providing a mature model of regulatory integration.   

Taken together, these developments suggest that Tanzania’s regulatory reform positions it within a broader global and regional trend. If implementation is consistent and supervisory capacity remains strong, the framework could enhance Tanzania’s attractiveness as a destination for Shari’ah-compliant investment and contribute to a more diversified and inclusive financial sector.