THE MEANING OF INTEREST AND INTEREST BASED INSTITUTION IN TANZANIA-PART IV

2. Intermediate and Support Institutions (ISI)

2.4 Unit Trust of Tanzania (UTT).

Unit Trust of Tanzania (UTT) was incorporated on 19th June, 2003. The vision being “to be an efficient investment institution that would facilitate the divestiture process and empower Tanzanians to become effective stakeholders in their country's economic development for improvement of their welfare.” UTT currently have four collective investment schemes (CIS) for the public to cater for various investors’ investment appetite. These are Umoja Fund or Umoja Unit Trust, Wekeza Maisha or Invest life Unit Trust Scheme, Watoto Fund or Children Career Plan Trust and Jikimu Fund or Regular Income Unit Trust Scheme.

Investment policies of these schemes which guide investment of mobilized funds are as follows:

1.Umoja Trust Fund: It is stated that “In a view of the Government's empowerment policy, 2% of shares of Tanzania Breweries Ltd. (amounting to 5,898,560 shares) and 1% of shares of Tanzania Cigarette Company Ltd. (amounting to 1,000,000 shares) will be acquired from the UTT.” Besides, the scheme can invest in ordinary shares of other companies listed in the DSE or other stock exchanges exceeding 30% of total investment of the scheme. The remaining 70% shall be invested in government instruments of various maturities, corporate bonds and in fixed deposit accounts. These make the scheme main source of income to be dividends, surplus on equity and interest.

Income statement of Umoja Unit Trust Scheme for the half year ended 31st December 2009, shows that interest income constitute about 86.8% (TZS 3billion), dividend income of 13.7% (TZS 487Million), the rest from other sources of income which are not clear.

2.Wekeza Maisha. This is an investment cum insurance scheme. It is a unit linked insurance plan (ULIP) in the sense that insurance and investment benefits are combined to provide life protection benefits and saving and investment benefits. Going through information sources available there is no stipulated investment policy. However, the funds are more invested in interest based or fixed income securities and very little in ordinary shares.

Income statement of Wekeza Maisha for the half year ended 31st December 2009, shows that interest income constitute about 80.2% (TZS 72 Million), Surplus on Equity of 19.8% ( TZS 18Million) with zero dividend income of 0%.

3.Jikimu Fund. This fund aims at providing regular income distribution/reinvesting of income and capital appreciation (if any) over a long term from a prudent portfolio mix of equity and fixed income securities. Jikimu fund investment policy allows investment to be allocated to debt instrument i.e. government bonds, corporate bonds and fixed deposit accounts up to 100%. However, it limits investment in equity up to 35%.

Income statement of Jikimu Fund for the half year ended 31st December 2009, shows interest income constitute 96.4% (68Million), Surplus on equity constitute 3.6% (2.5Million) while dividend income is zero for the period.

4.Watoto Fund. This is investment scheme which caters for the development of the children in the country. Investment policy states that asset allocation up to 100% can be dominated by debt instruments. Equity takes up to 50% of asset allocated.

Income statement of Watoto fund for the half year ended 31st December 2009 shows interest income constitutes 86.6% (TZS 49Million) and Surplus on equity stands at 13.4% (TZS 7Million).

Principally, any business venture’s success is measured on how much profit or return it has made over a certain period. Umoja Unit Trust can be said to have relatively achieved a good return on investment. However, this has to go hand in hand with other objectives of the trust-empowering Tanzanians to become effective stakeholders in the country’s economic development. The reality is this vision is far from being realized, since Muslim investors are weary of these funds because they don’t comply with Sharia-the way of Allah. As shown above, all funds generate interest income of intolerable magnitude which is then distributed to unit holders. Such an income is unlawful under Sharia law and renders Muslim population far away from UTT vision of empowering Tanzanians to become effective stakeholders in the country’s economic development.

2.5 Insurance Firms.

By end of 2009, there are seventeen licensed insurance companies in the country, two of which are public enterprise. Some of the private insurance companies dominate the market than National Insurance Company established since 1963. The major business of insurance firms is to offer protection through the sale of policies in return for consideration. Insurance policies offered include life insurance and general insurance policies.

In developing countries, insurance institutions provide protection as well as facilitating an efficient means of mobilizing savings which are invested within the country according to national priorities. Basically, premiums collected under various insurance policies are invested in approved government securities or deposited in commercial banks fixed term accounts which pay interest in return.

In 2005, total insurance premiums written reached Sh 100.13 million, total investment reached 95.5 million of which 41% invested in Lands and buildings, 32.4% in government securities and bank deposit, 13.6% investment in connected companies, 7.3% in other financial assets and 6.3% in shares. In 2009, premium worthy Sh 200 billion were collected.

Insurance business is repugnant to Sharia law based on the mode of operation and its investment avenues. Sharia considers it to involve element of gambling, interest and speculation, elements which can render any business to be declared prohibited under Sharia. For that matter, Muslims are forced to insure only under third party policy as it is compulsory by the law and the rest is uncovered. This exposes them to high exposure of various insurable risk which can take them to abject poverty. Perhaps it is time for insurance companies to embrace Takaful or Islamic insurance and capture the needs of the niche.

2.6 Pension or Provident Funds.

By end of 1960’s, there were four major pension funds schemes such as Local authorities’ provident fund, Government Employees provident fund and National provident fund. Currently, there are six pension funds in the country which provide retirement and other benefits to contributing members. These pension funds have been legally founded by respective Acts of parliament and managed under several ministries which gives them protection under the law and a sense of commitment for the public good. Under the Ministry of Finance and Economic affairs, there are PSPF, PPF, GEPF and ZSSF, NSSF is under the Ministry of Labor, Works and Youth Development and LAPF is under the Ministry of Local Government.

Analysis of pension funds investment policies and practice reveals that there are three major investment avenues used for investment. These are fixed income assets, real estate (properties) and ordinary shares. Fixed income assets constitute of interest bearing treasury bills and bonds, corporate bonds, investment in fixed term and call accounts as well as granting corporate loans. Investment in fixed income assets dominate overall investments made by pension funds for more than 68%, investment in properties takes about 25% and the rest goes to investment in the ordinary shares of DSE listed companies.

Now some of these funds have come up with voluntary membership like NSSF-HIARI to attract the general public. I wont be surprised that between Muslim and Non-muslim this initiative shall be opted out by the former rather than the later. Why? because the way the relationship is formed, mechanism of operations and the investment policies of these funds are repugnant to sharia rules of contract and doing business or investment. Islam isnot against social security scheme as a way to protect and grow wealth of the public, but it has laid rules and principles for achieving such goals. Much can be learned from a concept paper by Brother Omar Mohammed Shariff on Sharia Compliant Social Security Fund, where in he discussed in detail the contractual features and mechanism of Sharia Compliant Social Security.

2.7 Business Entities ( Multinational, Local and SME business entities) (excluding banking and NBFI).

There are thousands of registered companies operating in the country. Some companies operate in more than one country referred to as multinational companies (MNC) as well as those operating locally. Corporate are strategic entities which always faces financial challenges in the course of their operations either to manage surplus cash or deficit. Though research shows that the need of working capital is the main concern of almost all corporate entity, some of them have excess funds in some period of their operations in which they need returns in the course of managing opportunity and operational costs.

Business entities are sources of free money for banks through current account operations as well as the source of income through provision of business loans based on interest. Even those entities that have no cash deficit, through banking in conventional ways enable the banks to have huge financial ability to lend on interest as it lowers the loan to deposit ratio of banks. These current accountholders get nothing, yet their funds are tool to exploit those in need of funds for consumption or investment as well as used to promote unethical businesses such as producers and distributors of alcohol, cigaratte, pork, gambling, hoarder of essential goods among others. Convetional bankers have no interest to promote social good at the expense of interest!