The Bank of Tanzania (BoT) has published Draft Microfinance (Non-Deposit Taking
Microfinance Service Providers) Regulations, 2024, seeking to replace Microfinance (Non-Deposit
Taking Microfinance Service Providers) Regulations, GN 679 of 2019.

This brief article highlights some changes the new Regulations bring to the financial sector.

    1. Name
      a. The 2019 Regulations required a business name of a microfinance service provider
      to contain the words “microfinance”, “finance”, “financial services”, “credit”, or
      “microcredit”
      b. The 2024 Regulations add “financial solution” to this list.

    2. The scope of integrity checks has widened
      a. The 2019 Regulations directed the BoT to consider the history of the proposed shareholders or proprietor in assessing the applicant’s reputation and integrity in past and present business practices.
      b. The 2024 Regulations expand the scope by requiring the BoT to consider reports from the credit reference bureau and any other information in determining theintegrity of the proposed shareholders, proprietors, partners, or trustees in assessing the applicant’s reputation and integrity in past and present business practices.

       

    3. Change in the assessment of financial capacity
      a. The 2019 directed the BoT to assess the applicant’s financial capacity by looking
      into various factors such as the net worth, levels of capital as shown on balance
      sheets, or the potential financial support that may be made available when the
      microfinance service provider requires capital injection.
      b. The 2024 Regulations only require the BoT to evaluate the financial capacity of
      the applicant by assessing the capital position as shown in the financial position
      statement or bank statement.

    4. Change of chief executive officer and members of a governing bod
      a. The 2024 Regulations require Microfinance Service Providers not to appoint any
      person as chief executive officer or member of the governing body and assign that
      person responsibilities unless it has obtained prior approval of the Bank.
      b. This regulation is brought at par with the same supervisory powers the BoT has
      over other financial institutions and increases its oversight powers in the sector.

    5. Disposition of Granted License
      a. The 2024 Regulations prohibit the transferability of licenses from one entity to
      another.
      b. This means that once granted to an entity, such license may not be transferred by
      means of acquisition in exchange of an agreed consideration. This effectively makes
      an application to the BoT the only way to enter into this market.


    6. Change of Ownership
      a. The 2024 Regulations direct a microfinance service provider who intends to make
      changes in ownership structure to seek and obtain prior approval of the BoT.
      b. Among others, such a microfinance service provider shall submit a declaration of
      source of capital, stating that the funds have not been obtained criminally or
      associated with any criminal activity, and proof of source of source of capital for
      foreign owners or shareholders.
      c. This requirement seeks to prohibit such providers from engaging in illicit financial
      activities.
      d. A microfinance service provider shall, upon approval by the Bank, register the
      change to the respective authority and submit evidence of change within seven days
      of registration.

    7. Prohibited activities
      a. The 2019 Regulations have a list of prohibited activities under Regulation 22,
      which included a prohibition on making payment orders and transfer of funds and
      engagement in any business other than providing financial products and services to
      its members.
      b. The 2024 Regulations have done away with the above prohibitions so that a
      microfinance service provider may make payment orders, transfer funds, and
      engage in any business other than providing financial products and services to its
      members.

    8. Regulation of internal and external audit
      a. The 2024 Regulations have retained the directive to have internal and external
      auditors but reduced the detailed level of regulation on how such auditors discharge
      their duties. This is presumably left within the auditors’ professional judgment.
      b. Similarly, the 2024 Regulations make it no longer necessary to have the BoT’s
      approval of the change of external auditor. Also, the prohibition that an external
      auditor shall not audit the same microfinance service provider for more than three
      consecutive years has been dropped.

    9. Loan collateral
      a. The 2024 Regulations have lessened strict conditions that had complicated the
      disposal of loan collaterals by the microfinance service providers.

    10. Classification and provision for loans
      a. The 2024 Regulations have done away with the classification of loans based on a
      number of days past due.
      b. Under the 2024 Regulations, a loan with a specific repayment date shall be
      considered past due in its entirety if any of its contractual obligations for payment
      have become due and unpaid.
      c. Similarly, a group loan shall be considered as past due in its entirety where any of
      the members of the group defaults and the amount due is not covered by the other
      members of the group.
      d. The 2024 Regulations require a microfinance service provider to assess loan
      impairment and provide for credit losses in accordance with International
      Financial Reporting Standards on a quarterly basis.

    11. Other provisions on loans and recovery
      a. The 2024 Regulations direct a microfinance service provider to give guarantors the
      disclosure statement in writing indicating his liability for the loan guaranteed.
      b. The 2024 Regulations also provide for debt collection and recovery for
      microfinance service providers.

    12. Revised minimum liquid assets
      a. Whereas the 2019 Regulations directed a microfinance service provider to maintain
      minimum liquid assets amounting to not less than five per cent of its total
      assets, the 2024 Regulations require a microfinance service provider to maintain
      minimum liquid assets amounting to not less than one per cent of its total
      outstanding gross loans.

       

    13. Enhanced management by the Bank in case of takeover
      a. The 2019 Regulations do not have exhaustive provisions for the Bank’s
      management after taking over a microfinance service provider.
      b. The role, powers, and functions of the Bank upon takeover are now clearly
      articulated in the 2024 Regulations.

    14. Provisions on Consumer Protection
      a. Detailed provisions on consumer protection contained in the 2019 Regulations have been dropped. This is because there are dedicated consumer protection regulations-The Bank of Tanzania (Financial Consumer Protection) Regulations, GN 884 of 2019, that cover all consumer-related affairs across all financial
      institutions in the country.
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Disclaimer
This article is not intended to replace professional advice. No one should rely
exclusively on the information provided as a substitute for seeking professional advice.
The writers or the Firm are not liable for any use of the information contained herein
and do not guarantee the accuracy of its contents from the date of publication to the
date of usage.

By Dr Goodluck Temu