Central bank impact on practicing mudarabah financing in islamic banks: the case of Tanzania

Abstract

This paper investigates the challenges faced by Islamic banks in practicing Mudarabah financing under conventional regulatory regime by interviewing eleven Islamic bank managers from three selected banks. Thematic data analysis was employed to understand hindrances for Islamic banks in operating Mudarabah financing under conventional regulatory regime. Findings of the study have provided a number of major challenges that hinder Islamic banks performance in Tanzanian context. The challenges include irregularities of policies and regulations, non-supportive operational and technical structure, and missed perceptions of Mudarabah among the public. However, a new challenge of the impact of the central bank on Islamic banks was identified. It is expected that Tanzanian Islamic banking performance will be enhanced if the central bank introduces sharia regulations for Islamic banking, initiates the central sharia supervisory board, and harmonize, country regulations with financial regulations regarding Islamic perspectives.