The Bank of Tanzania issues the Banking and Financial Institutions (Non-Interest Banking Business) Regulations, Government Notice No. 688 of 2025 (the Non-Interest Banking Regulations)

In a strategic move to expand access to banking services while ensuring compliance with the principles and rules of Islamic commercial jurisprudence (Shari’ah), the Bank of Tanzania (the BOT) has issued the Non-Interest Banking Regulations.

The newly issued Regulations establish a clear and comprehensive legal framework for the governance, supervision and operation of non-interest banking business and apply to all banks and financial institutions operating such business in the United Republic of Tanzania (the URT). 

In this legal update, we outline the key provisions of the Non-Interest Banking Regulations and highlight the compliance obligations and regulatory requirements applicable to institutions engaged in non-interest banking business.

The Non-Interest Banking Regulations define, among others, the following key terms:

“Conventional bank or financial institution” means a bank or financial institution that offers interest-based banking business;

“Investment” means a mode of financing undertaken by a non-interest bank, non-interest financial institution or non-interest banking window in compliance with Shari’ah;

“Non-interest bank or non-interest financial institution” means a bank or financial institution licensed to conduct non-interest banking business in accordance with Shari’ah;

“Non-interest banking business” means a banking business whose products and services are wholly and exclusively compliant with Shari’ah;

“Non-interest banking window” means a branch or dedicated unit of a conventional bank or financial institution which provides products and services that are Shari’ah compliant; 

“Non-permissible income” means income accruing to a non-interest bank or non-interest financial institution or non-interest banking window in a manner that is not compliant with Shari’ah; and

“Shari’ah” means the principles and rules of Islamic commercial jurisprudence.

Key Compliance obligations and regulatory requirements under the Non-Interest Banking Regulations

Application and conditions for establishment of non-interest banking business

Prior to commencing non-interest banking business, a person must ensure full compliance with the Banking and Financial Institutions (Licensing) Regulations Government Notice No. 297 of 2014 (as amended). In addition,  the Non-Interest Banking Regulations require proposed non-interest banks or non-interest financial institutions to satisfy the following conditions in order to establish and operate a non-interest banking business:

(a)    ensure that all transactions are conducted in full compliance with Shari’ah principles;

(b)    provide clear explanations on the methods of resource mobilisation, business expansion, and the nature of business transactions; and

(c)    demonstrate that the institution has the necessary expertise, skills, and facilities to ensure operations are conducted in accordance with Shari’ah.

Application for establishment of non-interest banking window

A conventional bank or financial institution may establish a non-interest banking window upon submitting a written application to, and obtaining prior written approval from, the BOT. The application must be accompanied by a feasibility report (the Report) demonstrating the justification for establishing a non-interest banking window

Under the Non-Interest Banking Regulations, the Report is required to include the following information in respect of the non-interest banking window:

(a)    the proposed location;

(b)    Shari’ah compliant products and services to be offered;

(c)    Shari’ah advisory charter;

(d)    projected balance sheet and income statement for the first three years of operation;

(e)    proposed organisation structure;

(f)    the proposed number and location of outlets to be operated in compliance with Shari’ah;

(g)    a written commitment to keep funds and accounts of non-interest banking business completely separate from those of the conventional banking business;

(h)    accounting policy;

(i)    Shari’ah compliance policies and procedures;

(j)    details of its staffing, including qualifications and responsibilities; and

(k)    the proposed core banking system capable of processing non-interest banking business transactions in compliance with Shari’ah.

Establishment of non-interest banking unit

A conventional bank or financial institution intending to conduct non-interest banking business must establish a dedicated non-interest banking unit at its head office, which will be responsible for monitoring the  operations of the non-interest banking business. In addition, the non-interest banking unit must be responsible for the following:

(a)    developing and implementing policies and procedures for non-interest banking;

(b)    coordinating the activities and affairs of the Shari’ah advisory committee;

(c)    ensuring the implementation and compliance of regulations, guidelines, and directives relating to non-interest banking business issued by the BOT; and

(d)    ensuring that funds received from non-interest banking business are invested in  compliance with Shari’ah.

Outsourcing of Shari’ah advisory services

A conventional bank or financial institution operating a non-interest banking window may, subject to the approval of the Board of Directors (the Board), outsource Shari’ah advisory services.

Separation of books of accounts and records

A conventional bank or financial institution must maintain separate books of accounts and records for its non-interest banking window. 

Shari’ah compliance disclosures

A non-interest bank, non-interest financial institution, or non-interest banking window must disclose the following information in its audited financial statements:

(a)    any non-compliance with Shari’ah rulings, the reasons for such non¬compliance, and the manner in which the matter was addressed;

(b)    the amount and nature of activities generating Shari’ah non-compliant income, the manner in which such income was disposed of, and the measures taken to prevent its recurrence; and

(c)    procedures and eligibility criteria for the distribution of Shari’ah non-compliant income.

Financing structure 

A non-interest bank, non-interest financial institution, or non-interest banking window may engage in a range of Shari’ah-compliant financing structures, including the trading in and holding of tangible assets, as well as risk-sharing arrangements such as partnerships and equity participation with customers.

Modes of financing 

Pursuant to the Non-Interest Banking Regulations, institutions offering non-interest banking services may invest in modes of financing that conform to Shari’ah and that have been proposed by the Shari’ah advisory committee and approved by the Board.

Disclosure of investment accounts

Pursuant to the Non-Interest Banking Regulations, a non-interest bank, non-interest financial institution, or non-interest banking window is required to make adequate and timely disclosures to investment account holders and to the public of all material and relevant information relating to the investment accounts it manages.

Liquidity requirements

A non-interest bank, non-interest financial institution, or non-interest banking window must establish a liquidity policy and comply with the requirements of the Banking and Financial Institutions (Liquidity Management) Regulations Government Notice No. 724 of 2023.

Treatment of non-permissible income

Any non-permissible income received by a non-interest bank, non-interest financial institution, or non-interest banking window must not be treated as its income. Such income must be kept in a separate account and must not be commingled with the institution’s own funds.

Disposition of non-permissible income

Non-permissible income must be disposed of strictly through donations to individuals in need or to charitable organisations duly registered and recognised by the relevant authorities. This disposition is subject to the following conditions:

(a)    a non-interest bank, non-interest financial institution or non-interest banking window shall not be connected or affiliated in any manner with the charitable organisation or institution, and shall not, whether directly or indirectly, derive any benefit from the donation;

(b)    a non-interest bank, non-interest financial institution or non-interest banking window shall not, whether directly or indirectly, derive any benefit from the donation;

(c)    a charitable organisation shall not confer any benefit on a shareholder, director, member of a committee, employee of the non-interest bank, non-interest financial institution, or non-interest banking window, or on its subsidiaries, associates, or affiliates;

(d)    the disposition shall not be treated as part of corporate social responsibility of the non-interest bank, non-interest financial institution or non-interest banking window; and

(e)    a non-interest bank, non-interest financial institution or non-interest banking window shall conduct proper due diligence on any individual or charitable organisation requesting non-permissible income.

Notwithstanding the above, the Shari’ah advisory committee is required to review and approve the disposal of non-permissible income, ensure  compliance with the conditions for such disposal, and advise the Board accordingly.

Penalties for non-compliance

In cases of non-compliance, the BOT may impose penalties on a non-interest bank, a non-interest financial institution, or a conventional bank or financial institution operating a non-interest banking window. These penalties include:

(a)    prohibition from declaring or paying dividends; 

(b)    suspension of the privilege to issue letters of credit or guarantees;

(c)    suspension of access to financing facilities of the BOT;

(d)    suspension of lending and investment activities;

(e)    suspension of capital expenditure;

(f)    suspension of the privilege to accept new deposits;

(g)    revocation of banking license;

(h)    suspension from office of the defaulting director, officer or employee; and

(i)    disqualification from holding any position or office in any non-interest bank, non-interest financial institution or non-interest banking window in the URT.

Conclusion

The Non-Interest Banking Regulations a comprehensive and practical framework for the operation of non-interest banking in Tanzania. By empathising Shari’ah compliance, sound governance, transparency, and accountability, the Regulations promote ethical banking practices while enhancing confidence, stability, and sustainable growth in the non-interest banking sector.