THE LEGAL CHALLENGES AFFECTING THE IMPLEMENTATION OF MURABAHA FINANCING IN TANZANIA

Abstract

Murabaha is a mode of Islamic finance founded on sale rather than on lending a financier purchases an asset and resells it to a customer at a price that discloses the profit built into it usually recovered through instalments. Because Murabaha operates through sale rather than through loan it depends on clear legal rules governing ownership, possession, documentation, taxation and disclosure. In Tanzania, Murabaha has developed within a legal system designed primarily for conventional, interest-based banking and this article examines the legal difficulties that this mismatch has produced. Drawing on a study of Murabaha financing in Tanzania and on the work of established Islamic finance scholars the article identifies seven interlocking problems the absence for most of the period studied of a dedicated Islamic banking law; the unsuitability of everyday banking vocabulary such as loan and interest for describing a sale-based structure, the risk that Murabaha's two constituent sales are taxed twice, fragmented Shariah supervision across banks, the limited readiness of courts and dispute-resolution bodies for Murabaha litigation, weak disclosure to customers and the risk that some products satisfy the form of Murabaha while functioning in substance as ordinary loans. The article argues that the central question is not whether Murabaha can exist in Tanzania but whether the law supplies clear rules on ownership, taxation, disclosure, Shariah governance and dispute resolution. It closes with a set of practical reform proposals. a dedicated Islamic finance law, fair tax treatment, stronger and more centralized Shariah governance, structured training for judges and lawyers, and standardized disclosure and contract documentation.