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Microfinance regulations update

23 October 2019
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The Bank of Tanzania recently published the Microfinance (Non-Deposit Taking Microfinance Service Providers) Regulations (Regulations) issued under the Microfinance Act, 2018 (MFA).

The MFA was enacted on 16 November 2018. It was passed to operationalise the National Microfinance Policy, 2017. The objective of the National Microfinance Policy is to promote financial inclusion. It aims to do this by creating an enabling environment for an efficient and effective microfinance sub-sector in the country that serves the needs of low-income individuals, households and enterprises and thereby contributes to economic growth, employment creation and poverty reduction. The MFA provides for the licensing, regulation and supervision of microfinance businesses.

The MFA defines microfinance business to include receiving money by way of deposits or borrowing, providing micro credit, micro savings and micro insurance services, and providing loans and credit facilities to small enterprises and low-income households. The MFA contemplates four tiers of microfinance service providers (MSPs), namely:

  • deposit taking MSPs;
  • non-deposit taking MSPs, such as individual money lenders;
  • savings and credit cooperatives; and
  • community microfinance groups.

The MFA sets out the procedure for applications for licences by and registration of MSPs. MSPs are prohibited from operating without a valid licence. An MSP operating without a valid licence may be fined up to TZS 100 million or subject to imprisonment of up to five years or both.

Under Part III of the MFA, the Bank of Tanzania is empowered to supervise and regulate MSPs. These powers extend to issuing or revoking licences, evaluating the performance of MSPs and protecting consumers from malpractice in the sector. Further, the Bank of Tanzania is able to investigate microfinance operations, inspect books of accounts and other records.

MSPs are required to ensure utmost transparency and fairness throughout a transaction with a customer. This includes:

  • instituting complaints handling and dispute resolution mechanisms;
  • upholding the rights and interests of consumers;
  • educating consumers;
  • vetting standard contracts;
  • providing full-disclosure of relevant information on products and services, including interest rates, fees or penalties; and
  • disposing of property of a debtor (or any relevant collateral) as a final resort.

The Regulations require foreign-owned MSPs to submit a training plan to the Bank of Tanzania setting out, among other things, specific timeframes for imparting microfinance skills and expertise to Tanzanian staff along with a succession plan and the extent to which Tanzanian staff shall occupy senior management positions in the MSPs.

The Regulations create local content requirements for MSPs. Specifically, non-deposit taking tier 2 MSPs are required to have at least two Tanzanian members on the board of directors. Further, the Regulations impose stringent rules with respect to the employment of non-Tanzanians, such as obtaining the prior approval of the Bank of Tanzania and limiting the number of non-Tanzanians in an MSP to five.