ISLAMIC FINANCE LESSONS FROM HIJRAH.

There is no doubt whatsoever that the migration (Hijrah) of Prophet Muhammad (peace be upon him) to Madinah was the crucial event, which established the Islamic civilization. It marked the transition from teaching Tawheed (oneness of Allah) to teaching rules related to Islamic life as whole and running an Islamic economy in particular.

Muslim historians have documented the economic situations of Mecca and Medina. One of the economic feature is that interest was prevalent in Mecca and predominant in Medina. Quraish were involved in Riba and Jews of Madina benefitted most from it. One historian said; "The wealth of Medina was almost entirely concentrated in the hands of the Jews. The Arabs (now the Ansar) lived in poverty and perennial want. One reason why they were chronically poor was the high rates of interest they had to pay to the Jews on their loans." No wonder Qur'anic verses on Riba revealed in Madina condemning Jews severely and prohibited Muslim from engaging in Riba transactions. This prohibition provided solid grounds on elimination of Riba in the economy of Medina in days that followed.

In this article, my aim is to draw specific lessons that are related to Islamic Finance from the migration process itself rather than what was attained after the migration related to Islamic economics and finance as a whole. These lessons are;

1.Wadiah deposit and related rulings. It is well known that the Prophet (peace be upon him) was trustworthy before and after he received the message. Many people used to keep their valuables with him and he (peace be upon him) would keep them until required by owners. He (peace be upon him) never used them and always owners will receive in the same way they had given. More important, when migration was near, he (peace be upon him) ensured each valuable had a name of its owner and asked his brother in law, Sayyidna Ali (may Allah be pleased with him) to return them to individual owner after he had migrated.

This noble actions teaches us, first; we should treat other people valuable with due care. Islamic banks have fiduciary responsibility to manage deposits under their watch as per agreements and ensure these deposits return to the owners whenever needed or to the next of kin in case the owner is dead according to respective country’s laws. At personal level, we might have debts or valuables of others, we must write a will (Wasiyya) stipulating their owners and inform a member of the family to pay the debts or return the valuables when we die. In short, we have a duty to prudentially manage assets of others and a duty to return to their owners whenever we think we cannot fulfill our mandate.

2. Takaful or Protection Planning. The journey to Madina was pre-planned not on the logistics aspects per se but on the protection needs of the key person. The Prophet (peace be upon him) before migrating, he invited people of Madina (later known as Ansar) to Islam and met six people from Madina in what is referred as first Aqaba pledge, followed with second Aqaba pledge. Among the items pledged was to protect and defend him (peace be upon him) as they would do to protect their spouses and children. This become social protection given to Prophet (peace be upon him) and those who followed him to Madina against enemies of Islam and Muslims.

With this in mind, we learn that our life requires some form of protection against risks such as illness, loss of employment, fire, accidents or business losses which makes Takaful (Islamic form of Insurance) critical means to protecting families and our livelihood. Takaful companies have sacred responsibility of offering takaful covers that are suitable, affordable and sustainable to protect takaful participants and their businesses. At personal level, protection planning is critical and should not be ignored either you are a high net worth individuals (HNIs) or else on risks such as illness, accident and death, mortgage risks and business risks i.e. family and general takaful. As a key person in a family or important shareholder or crucial partner in a business, chances are that your dependants or business might suffer high financial costs in case of illness, disability or death. In short, we must assess areas we need protection or takaful cover and have it. In other words, let’s tighten our camel and put our trust in Allah!

Finally, Hijrah has a lot of other lessons on a moral-social, political and economic aspects. It is upon us to dedicate some time to read and ponder on the significance of this historical event that not only changed the way Muslim practiced their religion but changed the World into a better place.

TAKAFUL IN TANZANIA: A WAY FORWARD.

Research conducted by Tanzania Insurance Regulatory Authority (TIRA) in 2011 had shown that there is unfulfilled demand of takaful products in Tanzania and that there are potential investors to fill the demand. In light of this, TIRA decided to study matters of licensing and supervision of Takaful companies from several jurisdictions, the result of which a draft regulation was proposed to important stakeholders in 2013.

Stakeholders deliberation were documented and submitted to TIRA for final touches. Sources familiar with the matter, hinted that TIRA might have submitted stakeholders proposed regulation to the Ministry of Finance and Planning in 2014 or early 2015. Up to now, either no progress made or no information on what is the next step or when to expect good or bad news. Unfortunately, some potential investors had already started to mobilize human resources in view that the matter will be decided within reasonable time. Still optimistic though we are where we were albeit some crucial steps taken to have the regulation, no takaful company and no takaful regulation in Tanzania.

In neighboring Kenya, one takaful company in operation since 2011 and regulation followed in 2016. Can this be an option for Tanzania? No, due to regulator stand to have regulation first!

So what may be done? Well, i might not have straight or proven way around this but i think there are several options worthy to engage with rather than wait and see that has not yielded any result. Option one, demand and supply driven initiatives such as potential customers particularly in the corporate sector and potential investors should seek audience with Ministry of Finance to seek answers and if need be have a constructive discussion and time line on when to expect the regulation to be in place. Second, depending on the outcome of the first option, stakeholders may organize a meeting with Prime Minister to seek some answers and present our displeasure in the way the matter is slowly taken. Third, depending on the outcome of the first or second option, lobby the political class in the ruling party particularly from Zanzibar government to engage their colleagues in the mainland in order to fasten decision making on the matter. This is because Zanzibar Insurance Company which is owned by Zanzibar government and which has invested in staff capacity building and prepared to offer takaful products has much potential to grow with Takaful contributing positively to Zanzibar government revenues.

Of course, these options are not exhaustive and i look forward to hear from others on best way to make PPP work in this case.

TANZANIA FINANCIAL EDUCATION FRAMEWORK, ITS WEAKNESSES AND A WAY FORWARD.

Financial education and consumer protection have been identified as important pillars to achieve financial inclusion. Many countries around the world have taken some measures on these two pillars albeit at different context and magnitude. With the increase of financial providers in the country, financial product sophistication and low financial literacy level, the need for financial education and consumer protection cannot be overemphasized.

Tanzania has recognized the vital role of financial education and it has taken bold measures in the right direction. For example; in 2016 the government launched its five years “National Financial Education Framework/Strategy-Public Private Stakeholder’s Initiative” which aims to be a guide for the implementation and coordination of financial education initiatives in Tanzania. It comprises three components namely: a consumer strategy; a national coordinating and implementation structure; and a results-based monitoring and evaluation framework.

However, the framework has several fundamental weaknesses just to mention a few. First, the framework puts a great emphasis to the private sector to take the lead in the implementation of financial education initiatives and the adoption of responsible finance practices in the country where as the government and its agencies plays leadership role including but not limited to implement financial education initiatives targeted at own employees. Giving the private sector implementation role, ignore private sector especially financial institutions weaknesses such as financial constraints as well as a tendency to promote its interests. It may not be a surprise to find the bank or MFI runs marketing initiative for her products and services disguised as financial education initiative.

Second, despite baseline survey having shown that financial literacy is at low level to the largest segment of the population, a voluntary approach is advocated, rather than legislating for the implementation of financial education. This is to say even the National Financial Education Secretariat (N-FES) or Bank of Tanzania despite being apex body on financial matters of the country and key stakeholder in the framework will act voluntarily and not legally bound to do so.

Third, framework has no funds for implementation apart from government meeting operational costs of N-FES. All that it suggests is to set up Financial Education Fund to provide support for the implementation of financial education programmes by stakeholders. How will it be funded? The framework appears to rely on voluntary contributions and fund raising strategy. It appears that the framework positioned to end up on papers.

Fourth, it is not clear if financial education content to targeted segments is the role of N-FES or of interest groups. While interest groups are critical implementation component, financial education content is a specialty area that requires expert knowledge to address target segments financial education gaps and any relevant future educational need.

What needs to be done to address these weaknesses? It is my humble suggestion that the government should legally institutionalize National Financial Education Secretariat (N-FES) with a law or within existing law, giving N-FES a legal mandate and responsibility to ensure Tanzanians in all segments are financial literate. N-FES should have its own budget from the national budget rather than relying on fund raising campaigns or voluntary contributions. In addition to its current roles and responsibilities, it must assume the leading role in the implementation of financial education initiatives in the country by designing financial education curriculum and training modules targeting all segments of the population and work closely with other stakeholders on the delivery of those modules to the target segments.