Banking in Tanzania: Post-licensing compliance for banks, financial institutions and microfinance service providers

  • Étude de marché 30 juin 2021 30 juin 2021
  • Afrique

  • Finances

In this article, we highlight some of the basic compliance requirements that banks and financial institutions (BFIs) and microfinance service providers (MSPs) in Tanzania must strictly adhere to after receiving their licence to provide banking and financial services.

The Bank of Tanzania (BOT) is the regulatory authority responsible for the licensing of BFIs and MSPs. The BOT’s regulation extends to the conduct of business and operations of BFIs and MSPs.

Governing laws

BFIs are governed by the Banking and Financial Institutions Act No. 5 of 2006 (BAFIA) and subsidiary legislation thereof.

On the other hand, MSPs are governed by the Microfinance Act No. 10 of 2018 (the Microfinance Act) and subsidiary legislation thereof. There are four categories of MSPs:

  • tier 1 – deposit taking microfinance service institutions (DTs);
  • tier 2 – non-deposit taking microfinance service providers (NDTs);
  • tier 3 - savings and credit cooperative societies (SACCOS); and
  • tier 4 - community microfinance groups (CMGs).

According to the Microfinance Act, DTs are regulated by the BAFIA even though they are a category of MSP.
 

Post-licensing compliance: BFIs

Commencement of business

Pursuant to section 11 of the BAFIA, BFIs are required to commence business within 12 months once licenced by the BOT. The 12 months’ requirement is subject to an extension by the BOT in writing. The BOT is mandated by the law to revoke a licence issued to a BFI if the same does not commence business within the prescribed time. The BOT would publish a notice of revocation in newspapers of general circulation in the location of the BFI within three days from the date of revocation. The BOT can also take any other reasonable steps to inform the public about such revocation.

Management

BFIs are legally required to have a board of directors (Board) which is composed of not less than five members. The Board must have executive and non-executive members however the majority of the members must be non-executive. From the non-executive members of the Board, two must have experience in either banking, finance, accounting, auditing, law or economics. Further, the chairperson of the Board must not be an executive member, a member of the audit committee or credit committee. BFIs would also require the BOT’s approval before making changes to their management such as appointing a senior manager or a board member.

Minimum capital

BFIs are required by law to meet certain minimum core capital requirements. The applicable minimum core capital requirements are set out in the Banking and Financial Institutions (Capital Adequacy) Regulations of 2014 as amended in 2015 (the Capital Adequacy Regulations). The BOT is also mandated under the Capital Adequacy Regulations to issue certain directives in relation to the applicable minimum core capital requirements for BFIs. The BOT may cancel a BFI’s licence for failure to meet the minimum core capital requirement.

Deposit Insurance Fund (DIF)

There exists a DIF established under the BAFIA in which all BFIs licenced by the BOT are, by default, contributors thereto. BFIs are required to pay into the DIF an annual amount as the DIF may determine. The DIF prompts payment by issuing a notice to the BFI that specifies the amount to be paid and the period 21 days within which the BFI should make such payment. Failure of the BFI to effect payment to the DIF as notified would attract a penalty interest charge not exceeding one half percent of the unpaid amount for every day the amount remains unpaid.

Exhibitions

The BAFIA requires BFIs to exhibit their licences and financial statements at their business establishments. All BFIs must openly exhibit the licence granted by the BOT at their principal place of business and in each of their banking units. Further, BFIs must, in a similar fashion to licences, exhibit their last audited financial statements. BFIs that fail to exhibit their licences and last audited financial statements shall be liable to a default fine upon conviction, which does not exceed TZS 5,000,000 (approx. USD 2,200) for each day of default.

Fidelity and secrecy

BFIs must adhere to the practices and usages customary among bankers. This entails non-disclosure of any information of their customers unless required by the law or the practices and usages customary among bankers. This restriction applies to the officers/employees of the BFI who are required to make a written declaration of fidelity and secrecy before assuming their duties. The written declaration must be witnessed by the Chief Executive Officer or the Secretary of the BFI. Contravention of the non-disclosure requirement invites liability upon conviction to a fine not exceeding TZS 20,000,000 (approx. USD 8,600) or imprisonment for a term not exceeding three years or to both fine and imprisonment.
 

Post-licensing compliance: MSPs

Minimum capital

NDTs are required to maintain a minimum capital of TZS 20,000,000 (approx. USD 8,600). The minimum capital requirements for SACCOS depend on the licence category, which is either Category A or Category B. Holders of Category A licences must maintain at all times a minimum core capital of TZS 10,000,000 (approx. USD 4,300) while the minimum core capital for Category B licences is TZS 200,000,000 (approx. USD 86,200). NDTs and SACCOS that fail to maintain the required minimum core capital shall submit to the BOT a capital restoration plan within 30 and 60 days, respectively, from the date of the shortfall.

Liquid assets

NDTs must maintain minimum liquid assets of not less than five percent (5%) of their total assets. For SACCOS, the minimum liquid assets required is not less than fifteen percent (15%) of its members’ total deposits, savings, short term borrowings and other short-term liabilities. The referred liquid assets include:

  • notes and coins which are legal tender in Tanzania;
  • balances held at banks or microfinance service providers;
  • treasury bills and bonds which are freely marketable and re-discountable at the BOT; and
  • other assets that the BOT may require.

Prohibited activities

NDTs are prohibited from accepting any type of deposits in Tanzania and cannot issue credit and debit cards. Also, NDTs cannot deal with payment orders and transfer of funds and neither can they engage in trust, foreign exchange and foreign trade operations. NDTs are only required to provide financial products and services to their members. Similarly, SACCOS are prohibited from engaging in activities such as operating current accounts, accepting deposits from non-members, foreign exchange, foreign trade, trust operations, credit cards, payment orders and transfer of funds.

Financial consumer protection

This requirement applies to all financial service providers licenced and regulated by the BOT. We have previously prepared legal updates regarding financial consumer protection.

For more information, please visit the links below:

New Bank of Tanzania Regulations on Financial Consumer Protection

Financial consumer protection: the requirement to establish a consumer complaints handling mechanism

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