A Mudarabah deposit certificate is an Islamic finance investment instrument based on the principle of mudarabah, a profit-sharing partnership between investors / depositors and a fund manager.
The general structure typically works as follows:
1. Investors provide capital
Banks, financial institutions, or other eligible investors purchase the certificates by depositing funds.
The investor is known as the Rab al-Mal (capital provider). The issuing institution i.e BOT (or designated manager) acts as the Mudarib (investment manager).
2. Funds are invested
The manager invests the pooled funds in Shariah-compliant activities or assets. The certificates can be on unrestricted (Mudarabah Mutlaqah), the manager generally has broad discretion over where and how to invest the funds, provided investments comply with Islamic principles and any regulations governing the program.
3. Profits are shared
Any profits generated from the investments are distributed according to a pre-agreed ratio. For example: Investors: 70% Manager: 30%. The percentages vary according to the terms of the issuance.
4. Losses are treated differently
Under classical mudarabah principles: Financial losses are borne by the capital providers in proportion to their investment. The manager loses only the effort, time, and expected management share of profits, unless losses result from negligence, misconduct, or breach of mandate.This is a key distinction from conventional interest-bearing deposits.
Why a central bank would issue them?
Central banks in Islamic finance systems often use Mudarabah certificates to absorb excess liquidity from banks, provide Shariah-compliant investment opportunities, help manage money supply and monetary policy as well as create an alternative to conventional interest-based central bank instruments.
For example: Several central banks in Middle East (Kuwait, Qatar, Bahrain) and Asia (Malaysia, Indonesia) and Africa (Sudan) have issued such certificates in the past. Latest entrant is the Central Bank of Libya which announced to issue unrestricted Mudarabah deposit certificates on 9th June 2026.
Can the Bank of Tanzania issue Mudarabah certificates?
As long as the BOT Act allows it, it can be done. Where will the deposits be invested in? This is valid question which deserve thorough review. Meantime, it is well known that the BOT engages in purchase and sell of gold and forex in the country. This is one of eligible halal avenues for BOT to use proceeds of Mudarabah deposits but not the only one. Rather than the bank to use it is own funds for such transactions, it may issue certificate to raise funds from Islamic banks provided the projected returns out of such investment are promising. Such returns will be shared between the BOT and the providers of capital.
In short, with proactive leadership at BOT and political will, it can be done.