Islamic finance continues to evolve in East Africa

By BusinessWeek Correspondent

Dar es Salaam. The launch of Tanzania’s first Islamic bank, Amana Bank, last monht is the latest development in Tanzania and East Africa’s emerging Islamic finance industry. With about half the population being Muslims there is a huge potential for Shariah-compliant financial services in Tanzania.

The headquarters of the bank are in the Kariakoo trade centre in the city, the hub of commerce in Tanzania, where a significant portion of merchants are Muslims.

The area is so important that another bank, the People’s Bank of Zanzibar (PBZ) has this month launched a branch specializing on Islamic banking.

Launching the PBZ branch last week Zanzibar President Ali Mohammed Shein urged the Bank of Tanzania to create a conducive atmosphere for positive service delivery in Islamic finance.

“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 Shein.

The chairman of the Amana bank Haroon Pirmohamed said that the bank is the result of a need for an alternative to a conventional banking system that provides ethical and fair modes of banking for all.

He said that the bank will offer products and services that meet the needs of not just the Muslim community but all citizens and corporate bodies in the country.

“Amana Bank is well aware of its responsibility and being the pioneer of dynamic Islamic banking system, we intend to have a stable and a dynamic bank that employs modern technologies.”

Asad Ahmed, Chief Executive Officer of Gulf African Bank, the first Islamic bank in Kenya, explained to Islamic Business & Finance that Islamic finance is evolving fast in East Africa.

“A new constitution has just been passed in Kenya; Tanzania is opening up its first Islamic bank; Uganda has passed its laws and three institutions there have applied for a licence. I think when you have the regional mix coming together there will be a much greater critical mass.”

He explained that Gulf African Bank would look at expanding into Tanzania and Uganda once it had strengthened its position in Kenya. “Islamic finance in East Africa is an opportunity to show that even in a region where Islam is a minority religion, an ethical form of banking can survive and do well,” he said.

Pirmohamed also emphasised that Amana Bank is targeting customers of all faiths. “The bank would not hoard interests as other banks do, we would split our surplus to our customers as stipulated in the Shari’ah,” he said, adding that non Muslim customers are welcome to join the bank.

Ahmed explained that Islamic banking in East Africa cannot be exclusive to the minority Muslim population. “The customer is interested in whether you can provide a service that is better or equal to a conventional bank, at rates that are better or equal to a conventional bank, and if you can do that there is no reason that they wouldn’t bank with an Islamic bank. We do banking – we don’t sell faith.”

Amana Bank’s Managing Director, Idris Rashidi, said that the financial institution will provide services to customers by abiding by the country’s laws without any discrimination. He said that the bank will provide services including personal saving accounts, term deposits, current accounts and Ihsan accounts.

In 2010 Absa launched Islamic banking in Tanzania through its subsidiary the National Bank of Commerce (NBC), marking its expansion into Africa. Following its success, in August this year it introduced corporate Islamic and business accounts to finance businesses wishing to operate under Shari’ah principles.

Statistics show that less than five million Tanzanians have access to banking facilities, which calls for robust awareness creation and innovation, the President explained. “These indicators point to the tremendous potential of this market niche which has previously been untapped,” he said.