The Bank of Tanzania (the BoT) exercising its powers under section 60(1) and (2) of the Microfinance Act of 2018 (the Act) has published the Microfinance (Non-Deposit Taking Microfinance Service Providers) Regulations of 2019 (the Regulations) among other regulations.

The Regulations give effect to section 5 of the Act which provides for four categories of microfinance service providers.

The Regulations are published under Government Notice No. 679 of 2019 in the Government Gazette dated 13 September 2019 and apply to microfinance service providers under Tier 2.

This month's briefing will focus on Tier 2 non-deposit taking microfinance service providers which include credit / microcredit companies, financial organisations, housing microfinance companies, individual money lenders and digital microfinance lenders.

Some of the key legislative highlights in the Regulations:

HIGHLIGHTS

SUMMARY

Regulations 4 and 5: Establishment and name of microfinance service provider

A microfinance business under Tier 2 can either be established as:

  • a company under the Companies Act, 2002
  • a business name under the Business Licensing Act, 1972 (for individual money lenders)

The business name of every microfinance service provider must contain the words; 'microfinance', 'finance', 'financial services', 'credit 'or 'microcredit'.

Regulation 46: Minimum capital

Tier 2 microfinance service providers must commence business and at all times maintain a minimum capital of TZS 20 Million (approx. USD 8,700) or higher.

Regulation 21: Permissible activities

Microfinance service providers under Tier 2 shall carry out the following activities:

  • issue microfinance loans
  • issue housing microfinance products
  • provide loan disbursement services for the delivery of credit programme
  • maintain and operate various types of accounts with banks and financial institutions in Tanzania
  • operate micro leasing facilities, microfinance related hire-purchase and arrangement of consortium lending and supervision of credit schemes
  • provide professional investment advice
  • micro insurance as an agent of insurers
  • equity investment
  • agent banking
  • such other activities as may be authorised by the BoT

Tier 2, microfinance service providers in Tanzania, cannot perform any activity outside of the above, without the BoT's approval.

Regulation 22: Prohibited activities

Unless authorised by the BoT, a licensed microfinance service provider under Tier 2 shall not:

  • accept any type of deposits
  • engage in foreign exchange business
  • engage in foreign trade operations
  • engage in trust operations
  • accept credit and debit cards
  • engage in payment orders and transfer of funds
  • engage in any business other than providing financial products and services to its members and other activities prescribed by the BOT

The BOT has the power to extend the prohibited activities.

Regulations 6 and 18: Application for licence and appointment of Tanzanians

A Tanzanian citizen applying for a licence to carry out microfinance business under Tier 2 must apply to the BoT in the form set out in the First Schedule to the Regulations and accompanied with:

  • in the case of a company; a non-refundable application fee of TZS 500,000 (approx. USD 217)
  • in the case of an individual money lender; an application fee of TZS 300,000 (approx. USD 130)
  • documents listed in the Second Schedule to the Regulations, including:
  1. an application letter
  2. evidence of payment of the application fee
  3. proof of source and availability of non-borrowed capital
  4. certified academic and professional certificates of Board members and the Chief Executive Officer (CEO)
  5. certified copy of the Taxpayer Identification Number certificate and tax clearance certificate
  6. Proof of citizenship of every subscriber, proposed director, CEO and individual money lender
  7. a declaration that the funds are clean
  8. any additional information the BoT may require

All Tier 2 microfinance service providers must appoint at least two Tanzanians to the Board of Directors.

An applicant that is a foreign owned microfinance service provider shall in addition to submitting the documents listed above also attach:

  • an equivalent of the BoT's approval
  • a training plan on how it will impart microfinance skills and expertise to Tanzanian staff
  • a succession plan containing the extent to which Tanzanian staff shall occupy senior management positions

Regulations 9, 12, 24, 35, 46 and 59: Other requirements

A Tier 2 microfinance service provider:

  • shall have a place of business in Tanzania
  • who was in operation before the commencement of the Act, must within 12 months of the coming into operation of the Act cease its operations;
  • must commence business on 1 January and end on 31 December of each year
  • must with the borrowers' consent and on a monthly basis, report all borrowers' credit facilities information to Credit Reference Bureaux
  • must within 30 days of failing to meet the minimum capital requirements submit to the BoT a capital restoration plan
  • who is a sole proprietor and whose loan portfolio exceeds TZS 200 Million (approx. USD 87,000) shall be required to form a company and operate as an entity

Regulations 9, 20 and 33: Approvals from the BoT

The following instances require the BoT's approval:

  • opening, relocating or closing a place of business
  • employing or renewing an employment contract of a non-Tanzanian
  • employing more than five non-Tanzanians
  • changing an external auditor(s)

Regulations 11 and 13: Determination of application and licence
  • Upon fulfilment of the requirements contained in regulation 6, the BOT will within two months issue a licence
  • The licence will be in force unless suspended or revoked by the BoT (it would appear that there is no renewal requirement)
  • A licence shall expire if the business does not commence operations within six months of the grant of the licence

Regulations 60, 14, 13 and 16: BoT's mandate

The BoT has powers to:

  • in accordance with the provisions of the Act, revoke or suspend a licence
  • refuse in writing to issue a licence if upon request the microfinance service provider:
  1. fails to submit any missing or additional information or documents
  2. fails to rectify or amend anomalies in the application
  3. provides false or misleading information
  • after the expiry of six months of the grant of a licence, give a microfinance business more time to commence its operations.

An applicant whose application is refused may reapply upon rectifying the deficiencies that formed the basis of BoT's refusal.

In addition to the powers identified above, the BoT can:

  • direct a Tier 2 microfinance service provider to transform to a Tier 1 business
  • further to the administrative measures provided by the Act, take additional administrative measures against a Tier 2 microfinance business that fails to meet its capital requirements, including:
  1. prohibit it from declaring or paying dividends
  2. prohibit it from opening a new branch
  3. suspend its lending or investment activities
  4. give a formal warning
  5. suspend from office or disqualify the defaulting director, employee or proprietor

Regulations 15 and 16: Transformation to Tier 1 and Transformation from another tier to Tier 2

A Tier 2 microfinance service provider may upon application and having fulfilled the criteria provided by the Banking and Financial Institutions (Microfinance Activities) Regulations of 2014 move to become a Tier 1 business.

A microfinance service provider under Tier 3 and 4 that intends to carry out Tier 2 business must:

  • meet the requirements of regulation 6
  • seek the Board and members approval or resolution
  • meet the minimum capital requirement provided under regulation 46

Regulation 61: Appeals
  • A person aggrieved by the decision of the BOT, must within 21 days from the date of the decision of the BoT, appeal to the Minister for Finance
  • All appeals under the Regulations shall be governed by the provisions of the Microfinance (Roles of the Minister) Regulations of 2019
  • The right to seek further recourse is provided under regulation 23 (7) of the Microfinance (Roles of the Minister) Regulations of 2019, where if a person is aggrieved by the decision of the Minister for Finance, s/he may appeal to the High Court

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.