Academic Scientific JournalsFinancial Markets in Adverse Legal Environment: A Case of Islamic Banking in Tanzania
Keywords:
Islamic Banking, Financial Markets, Shariah Compliance, Regulatory Framework, TanzaniaAbstract
The performance of financial markets largely depends on a legal environment that fosters stability, certainty, and regulatory clarity. Islamic banking, as a key player in financial markets in Tanzania is a Shariah-compliant entity in addition to observing laws of the land. On the part of the laws of the land however, Islamic banking is regulated by the legal framework primarily designed for conventional banking, offering inadequate accommodation to Shariah-compliant practices. This arrangement implies that, Islamic banking in Tanzania operates in an adverse legal environment. This fact awakened academic-curiosity of the Authors of this study to analyze the banking legal framework with a view of identifying legal challenges impacting Islamic banking operations. In so doing, the study employed documentary review and interview to gather relevant information. The information gathered, was interpreted qualitatively enhanced by a combination of a black-letter and socio-legal analysis. Findings of the study confirm that, Islamic banking in Tanzania operates in an adverse legal environment due to the existence of legal challenges that include: inadequate accommodation of Shariah-compliant practices in the banking legal framework; restrictive eligibility criteria for acquiring a banking license; constraints on asset based financing and liquidity management; the lack of central Shariah Advisory Board; and double taxation on Islamic financial transactions. The study recommends for amendments of the existing laws to accommodate Shariah-compliant practices. The amendments are essential to creating conducive legal environment that supports Islamic banking and strengthens financial markets in Tanzania.
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