Prepared by: NBC Islamic Banking

1. Opportunities and Challenges in provision of Islamic Financial Services in Tanzania:NBC’s Perspective Prepared by: NBC Islamic Banking

2. Introduction • Islamic Banking was first introduced in Tanzania in 2008. • By 2016, four (4) banks in Tanzania offer Islamic finance solutions through various models including fully fledged and window. This number is around 7% of licensed financial institutions and commercial banks in Tanzania • Current estimates put the total customer base for Islamic Banks in Tanzania at around 2.3% of the total banked population. • Tanzania is the most populous country in East Africa. International sources have published figures estimating Muslim population to be more than 40% of the total population. This means that the primary market potential for Islamic financial services providers is above 19 Million. • At less than 200,000 customers for Islamic Banks, penetration is less than 2% of potential customer base. *(total customer base sources are estimates derived from internal research)

3. Introduction • National Bank of Commerce first introduced Islamic Banking products and services in May 2010. • It is one of only four (4) banks which offer Islamic financial services in Tanzania. • NBC offers Islamic Banking products under a Window model, and has the widest reach of 51 branches and over 250 ATMs across its network • NBC offers both Asset and Liabilities Islamic Banking products. • Liabilities products operate under Qard al Hassan structure whereas the Asset products have been designed to follow Murabaha structure

4. Liabilities products • Under Qard al Hasan structure the customer/client lends to the bank by depositing their funds with the bank. The customer is entitled to the full amount upon demand. The bank may wish to invest these funds and any profits may be shared with the depositor at the discretion of the bank. • NBC Offers the following products under Qard:

5. Asset Products • Murabaha structure is a cost plus mark-up structure which requires the existence of two parties, a seller and buyer. In the context of doing business with the bank, the buyer will approach the bank and request for financing in order to purchase an item. The bank will therefore enter an agreement to purchase the item on behalf of the customer/client and sell it to them at a mark-up price. • NBC offers this facility with deferred payment option, which offers the client/customer flexibility to repay at an extended tenure.

6. La Riba Group Personal Finance Product Benefits • Doesn’t require collateral • Facilities ranging from TZS1M to maximum TZS80M • Flexible repayment tenures from 6 months to 60 months • Underlying asset required, meaning that money isn't channeled to other uses • Lower rate of default • Equal repayment amounts • Eases financial burden on the customer/client

7. La Riba Group Personal Finance Product Limitations • Doesn’t cater for self employed or unemployed • No buying of other facilities/loans • If customer has multiple facilities, affordability decreases • Extra buying/purchase, only on available amount on affordability • No shari’ah compliant insurance facilities to compliment product • No MoU, No lending

8. La Riba Group Personal Finance Customer trends • Study done on a sample group of 20% of the customers revealed that;

9. Challenges to the product • Currently the product(unsecured)depends on salaried employees • Lack of formal payment structures among Islamic Businesses • Lack of education among employees and employers • Inadequate Formal documentation to conduct assessments on Islamic Businesses • High staff/employee turnover • Low level of patronage • Limitations on the usage for the facility

10. Opportunities for the product • Enrichment of the product to cater for additional requirements such as services (e.g medical, education etc) • Awareness and Knowledge sharing campaigns to employers and employees • Enhancement to the product to cater for individual/ walk-in customers • Focus on alternative financing opportunities, such as (e.g Agriculture finance, Plot Finance etc) • Introduction of secured variants to the product

11. General Challenges to the Provision of Islamic Banking Services in Tanzania • Lack of a Regulatory Framework to administer Islamic Banks operations in Tanzania • Double taxation when conducting Murabaha transactions • Insufficient knowledge and awareness of Islamic Finance and Islamic Banking activities within Tanzania • Inadequate infrastructure to support expansion of Islamic Financial services • Lack of Shari’ah compliant money market instruments

12. General Opportunities for Islamic Banks in Tanzania • Expansion through Agency Banking • Focus on developing Agri-business as an alternative area of investment for Islamic Banks • Enhanced focus on Micro-lending • More innovative digital products

13. Conclusion Islamic Banking in Tanzania faces many challenges, however opportunities still exist. The driver for realizing these opportunities should be innovation. Islamic Banks need to continuously drive cutting edge ideas and focus on groundbreaking initiatives Islamic Banks need to transcend the current reality and explore new frontiers which will set fourth a new reality and develop the industry in Tanzania for the benefit of the customers. .

14. Jazakallahu Khairan