The Banking and Financial Institutions (Non-Interest Banking Business) Regulations, 2025 introduce immediate mandates for banks already operating non-interest products and those planning to enter the market. The BoT expects rigorous adherence to Shari’ah governance to prevent “Shari’ah non-compliance risk,” which could lead to severe financial and reputational damage.
1. Key Compliance Deadlines & Action Items
(a) Immediate Review: All institutions currently offering non-interest banking services must urgently review their governance structures and internal policies for alignment with the new Regulations;
(b) Application for Windows: Conventional banks must submit a formal feasibility study and receive written approval from the BoT before establishing or continuing a “window” operation;
(c) Unit Establishment: A dedicated Non-Interest Banking Unit must be established at the head office level to manage policy and Shari’ah coordination;
(d) Annual Assessment: The Board must submit an annual report to the BoT assessing the performance and suitability of the Shari’ah Advisory Committee (SAC).
2. Internal Audit & Shari’ah Compliance Requirements
The Internal Audit department is now tasked with a dual-layer audit approach:
(a) Shari’ah Audit: The internal audit function must include regular reviews to verify that all transactions, products, and investments comply with the rulings of the SAC;
(b) Funds Segregation: Auditors must verify the strict “firewalling” of funds, ensuring no commingling between conventional and non-interest banking books;
(c) Purification Audit: Periodic review of “Non-Permissible Income” accounts to ensure funds are donated correctly and are not utilized for CSR or business benefits;
(d) Risk Management: The audit must evaluate the adequacy of the risk management framework in addressing risks unique to non-interest banking, such as displaced commercial risk and rate-of-return risk.
3. Board Oversight & Accountability
(a) Primary Responsibility: The Board of Directors bears ultimate legal responsibility for ensuring the institution remains Shari’ah-compliant;
(b) Quarterly Reporting: The Board must receive and review quarterly reports from the Shari’ah Advisory Committee;
(c) SAC Independence: The Board must actively protect the independence of the SAC, ensuring they are not influenced by management in their rulings.
4. Risk of Non-Compliance
Failure to meet these standards carries significant regulatory weight:
(a) Financial Restrictions: The BoT may suspend dividend payments or capital expenditures;
(b) Operational Shutdown: The regulator may revoke licenses or suspend lending and deposit-taking;
(c) Personal Liability: Responsible officers and directors face potential disqualification from holding any position within the banking sector in Tanzania.
Comparison of Internal Audit Focus Areas
| Feature | Conventional Audit Focus | Non-Interest Audit Focus |
| (a) Revenue | Interest income accuracy. | Shari’ah-compliant profit-sharing. |
| (b) Income Leakage | General fee errors. | Detection of non-permissible (interest) income. |
| (c) Asset Quality | Credit risk and NPLs. | Asset-based risk and partnership performance. |
| (d) Compliance | AML/KYC and BoT prudential ratios. | Shari’ah rulings and SAC recommendations. |
| (e) Social Impact | General CSR spending. | Mandatory “Purification” (donations) from non-compliant income. |
Author
Sunday Ndamugoba is a Partner at RIVE&Co in Dar es Salaam. He is reachable at sunday@rive.co.tz
Disclaimer
The contents of this publication are intended for general information purposes only and do not constitute legal, tax, or professional investment advice. We strongly recommend that parties seek bespoke legal counsel to navigate the complexities of the Tanzanian laws.