What CRDB’s Al Barakah year anniversary means

CRDB Bank recently celebrated one year of Al Barakah Banking, or Islamic banking services.

This anniversary represents the bank’s continued commitment to listening to its customers and providing them with what they want.

Many commercial banks have left the Muslim community in the lurch, which has a high demand for financial services, for fear of violating their ethics and beliefs, which prohibit them from earning or paying interest or usury (RIBA).

That has not been a problem for CRDB because it cares about all Tanzanians and recognises the needs of all communities, which is why the service was created. Islamic banking and finance are financial services that adhere to Shariah principles; the sector can be divided into three categories: Islamic banking services, Islamic insurance (Takaful), and Islamic capital markets.

All three sub segments of Islamic finance have seen some activity in the Tanzanian market; recently, TIRA established Takaful regulations, and the market has seen multiple Sukuk issuances in response to demand and CMSA approval. CRDB Al-Barakah Banking aims to contribute to the growth of the service as part of the country’s overall financial sector growth.

Given that Islamic Banking forbids the charging or receiving of interest or usury, it instead employs the concept of business trading with a profit markup (known as Murabaha), in which the bank facilitates financial services by purchasing the required goods or commodities and selling them to the customer with an agreedupon profit markup.

Murabaha is the most widely used concept in Islamic banking, accounting for more than 80% of the financing modality. Profit-sharing (Musharakah) and service or commodity leasing (Ijara) are two other popular modes.

CRDB Albarakah Banking began by facilitating financing needs through the use of the Murabaha contract; however, we are currently in the process of launching some of the other contract modalities in the near future in order to broaden the scope of our Islamic Banking solution.

“Al Barakah” Banking (Arabic for “Baraka” in Swahili) was established with the primary goal of improving product diversity and customer satisfaction, but most importantly, of aligning with the government’s ongoing agenda of driving financial inclusion for all Tanzanians.

Islamic banking services are still a completely new service and concept within the bank, as well as for the majority of our target customers; therefore, we must send a different message and raise awareness both inside and outside the bank. Celebrating one year is an excellent way to raise awareness.

For CRDB, every step toward bettering people’s financial services is significant. CRDB Albarakah Banking also established a number of Shariahcompliant deposit accounts; all existing applicable bank accounts have a replica option of Shariah-compliant deposit accounts, such as the Albarakah Scholar account for children, the Albarakah Tanzanite account for diaspora, the Albarakah Hajj account for hajj savings, and many more.

When you open an Albarakah banking account, you can be certain that your deposit proceeds will not be subjected to interest and will not be used for investment avenues that are interest-based or contrary to our customers’ ethics and beliefs.

Within the first year of operation, CRDB Albarakah Banking services managed to achieve solid penetration with more than 33,000 customers, more than TZS 65 billion in financing (TZS 50 billion on balance and TZS 15 billion off balance), and a growing stable deposit base of TZS 25 billion.

To address the deposit-financing gap, Al Barakah Banking employs a Shariah-compliant arrangement in which conventional banking deposit proceeds are used to fund the excess Shariah-compliant financing book.

To clarify, in Islamic Banking, conventional banking deposits can be used to obtain Shariah-compliant financing; however, Shariah-compliant deposits cannot be used to finance non-Shariah business initiatives. Due to the high demand for Shariah-compliant services, 30% of Albarakah Banking deposit customers are based solely in the Zanzibar Islands.

Due to the Zanzibar Islands, our Eastern Zone has the most customers (51%), followed by our Western Zone (12.5%), and Highland (11%), others Zones picking the rest. In terms of financing, the trade sector contributes 32%, followed by the oil and gas sector 22%, and finally the fishing and transportation sectors (9% and 6%, respectively).

Albarakah Banking has already made significant contributions to salaried employees, the educational sector, the health sector, and many micro, small, and medium enterprises (MSMEs).

Albarakah provided TZS 1.4 billion to salaried employees, TZS 300 million to the educational sector, TZS 200 million to the health sector, and more than TZS 400 million to MSMEs.

The importance of these subsectors in the daily development of individual welfare and, ultimately, the overall economy is recognised by CRDB Bank. Peculiarity CRDB Al Barakah Banking is the country’s only Shariah-compliant financing service, providing Shariahcompliant asset-based financing to new and existing customers via Murabaha contract.

We provide vehicle, equipment, and machinery financing without the need for landed property collateral. Depending on their other credit qualifications, our customers are usually required to put down a small deposit (Hamish jiddiya) in order to qualify for financing CRDB Al Barakah Banking is the country’s only Shariah-compliant financing service, offering Shariah- compliant financing to salaried employees through memorandums of understanding with employers that include Shariah financing as an option with government and private institutions. For example, ZSSF, NSSF, NHC, GSM, USAD, and many others.

Since its inception, CRDB Albarakah Banking has been at the forefront of many social events initiatives, contributing more than Sh150 million in its first year, collaborating closely with Shariah-compliant event organizers, and so on.

Future outlook The bank is nearing completion of Istisnaa contract, a Shariah-compliant contract that will be used to finance projects that require the use of a contractor.

In addition, Al Barakah Banking is exploring the possibility of Shariah- compliant financing for women’s group lending in order to promote gender equality while also expanding financial inclusion.

Depending on our future growth, the bank anticipates more product diversification and even the possibility of issuing Shariah-compliant bonds, also known as SUKUK.

The writer, Rashid Rashid is the Head of CRDB Bank Islamic Banking Unit and reacheable via 0784278344 or email Rashid. Rashid@crdbbank.co.tz