1. Introduction
The financial sector in Tanzania, particularly the micro lending subsector is experiencing tremendious growth with the rise of online or digital loan services through mobile applications. The tremendous growth in the Tanzanian digital lending space is driven by the opportunities created by technological advancements and the the shortage of quick and less stringent credit system which thee traditional financial institutions are not familiar with. The advent of digital lending services in Tanzania has positively resulted in financial inclusion and economic development.
However, the rapid growth in the digital lending space has also birthed challenges, including high loan administrative fees and interest rates, unlawful and improper debt recovery practices, high rate of unregistered and unidentified digital lenders, reports of data privacy violation issues, and harassment of debtors and guarantors through unwarranted messages and other communication methods to demand repayment.
The foregoing challenges have threatened the financial system including consumer protection concerns, instability, vulnerability, and credibility issues relating to the operations of digital lenders in Tanzania.
In pursuance of its mandate under Section 12 of the Microfinance Act 2018 (“Microfinance Act, 2018”), the Bank of Tanzania (“BoT”) a issued the Guidance Note on Digital Lenders under Tier 2 Microfinance Service Providers, 2024 (“Guidance Note for Digital Lenders 2024”) to ensure adherence of online lenders to consumer protection principles, prevent unlawful or abusive lending practices and improve transparency in the digital lending market.
This piece outlines some of the key regulatory requirements for setting up and operating digital lending business in Tanzania in compliance with the Microfinance Act, 2018 and the Guidance Note for Digital Lenders, 2024.
2. What is the Minimum Criteria for Digital Lenders in Tanzania
A digital lender must be a microfinance service company registered and licensed by the BoT as a Tier-2 Microfinance Provider in Tanzania. By paragraph 3 of the Guidance Note for Digital Lenders 2024, any microfinance provider who intends to provide digital loan products and services in Tanzania shall meet the following minimum criteria:
(a) must be licensed by the Bank as a Tier 2 Microfinance Service Provider in accordance with section 16(1) of the Microfinance Act, 2018.
(b) must have a robust and secure digital lending platform for conducting digital lending operations with respective product(s). Please note that the BoT will require the testing of the digital loan application. The loan application, at minimum, shall include the following:
(i) specific consent of data and information obtained from user devices;
(ii) restriction of permission granted by the user’s devices on limited and specific data to accomplish the credit process, and should be ended after the credit relationship; and
(iii) dissemination of OTP and transaction messages to customers with contents indicating the name stipulated in the licence certificate issued by the Bank.
(c) digital lender must ensure full protection of customer data and be compliant with the Personal Data Protection Act, 2022, and its regulations.
(d) a landing page of the digital lending platform shall display the name of the microfinance service provider as indicated in the license certificate issued by the Bank. The displayed name shall start with the word ‘This App (or Digital Lending Platform) is owned or operated by (name of microfinance service provider)’.
(e) a digital loan service provider shall have competent staff or personnel to handle digital lending operations including accessing the system and extraction of relevant reports and providing technical support of the digital lending platform to customers. The staff shall, at minimum, possess ICT skills relating to the operations of the digital lending platform.
(f) a digital lending platform shall display interest rates, fees and charges, late payment penalty, payment frequency, loan limits, and tenure of each loan product before applying for a loan as indicated in the approved Lending Policy.
(g) a digital lending platform shall operate in Kiswahili or both Kiswahili and English language where Kiswahili shall be the default language. The language shall be simple and understandable to users.
(h) a digital lending platform shall display phone numbers and emails for lodging customer queries and complaints on the landing page, which are reachable and owned by the microfinance service provider.
3. How can a Microfinance Provider apply for No Objection Letter from the Bank of Tanzania?
In Tanzania, an existing licensed microfinance service provider who intends to offer digital loan products and services, shall apply to the Bank for a No Objection Letter (“NoL”).
An application for a NoL, shall be in the form set out in Annexure 1 to the Guidance Note.
An application for NoL shall be signed by the Chairperson of Governing body or Sole Proprietor and be accompanied by:
(a) description of the digital lending platform supported by process flow and screenshots of the user interface, terms and conditions of using or accessing the platform; and privacy policy.
(b) screenshots of the dashboard of the digital lending platform operating environment, which portray the following:
(i) account details indicating, at minimum, organisation and developer profile details.
(ii) date of initial upload in the operating environment.
(iii) category of digital lending platform.
(iv) targeted country or region.
(c) lending policy, which incorporates Digital Loan Products and Services.
(d) pricing model for interest rates, late payment penalties, fees and charges to be applied and interest computation method.
(e) a certified copy of the registration certificate from the Personal Data Protection Commission (PDPC) in line with the Personal Data Protection Act and its regulations.
(f) link for accessing the proposed digital lending platform and its products.
(g) a duly filled questionnaire provided in Annexure 2.
4. What are the Prohibited Activities for a Digital Lender in Tanzania?
Under Tanzanian law, a micro credit company doing digital lending must not engage in any of the following: –
(a) operating more than one digital lending platform. However, a digital lending platform can offer more than one digital loan product or service. This means that a digital lender in Tanzania cannot operate more than one loan app.
(b) use of a digital lending platform or other computer software to access customer’s personal data, including contact lists, call logs, phone messages, pictures, storage, social media accounts, emails, media, photos and files, and other installed applications for any purposes whatsoever including as a way of e- KYC or delinquency management or debt recovery process. This prohibition is to guarantee customer’s privacy rights against unlawful intrusion by digital lenders.
(c) must not publish, disclose or divulgence of customer information by any director, officer, employee, or agent of the online loan provider during and after the termination of engagement or employment with the digital lender.
(d) adopt any lending policy which has not been cleared or approved by the Bank of Tanzania or issuing any loan agreements that are not in line with Regulation 39(2) of the Microfinance (Non-Deposit Taking Microfinance Service Providers) Regulations, 2019, and regulation 22(5) of the Bank of Tanzania (Financial Consumer Protection) Regulations, 2019.
(e) share or allow personal data of borrowers or guarantors to be accessed by a person or entity residing outside the United Republic of Tanzania, unless for maintenance and improvement of the digital lending platform.
(f) In the course of debt collection, officers, employees or agents of digital lenders shall not engage in any of the following conduct against a customer or any other person: –
(i) use of threat, violence, or other means to harm the person, or his reputation or property if they do not settle their loans;
(ii) use of obscene or profane language sent to the customer or the customer’s references or contacts for purposes of shaming them;
(iii) access the customer’s phone book or contacts list and other phone records for purposes of sending them messages in the event of untimely payment or non-payment;
(iv) post the customer’s personal or sensitive information online or on any other forum or medium for purposes of shaming them;
(v) make unauthorised or unsolicited calls or messages to a customer’s phone contacts and other contacts;
(vi) improper or unconscionable debt collection tactic, method, or conduct; or
(vii) any other conduct whose consequence is to harass, oppress, or abuse any person in connection with the collection of a debt.
(g) acknowledge transactions carried out by a customer without generating and issuing e-receipts or instant messages.
(h) operating a digital lending platform without a clearance from the Bank.
(i) effect any changes in the details and operability of the digital lending platform including its pricing model, interest rates and other administrative charges without prior approval from the Bank of Tanzania.
(j) deactivation or closure of the digital lending platform without prior approval from the Bank of Tanzania.
(k) failure to notify the Bank within fourteen (14) days of their digital lending platform being suspended, removed, or blocked by the owner of the hosting environment or app distribution platform.
(l) accept or invite any form of deposits in the course of carrying out digital lending operations.
(m) publish any false, misleading or deceptive representation of its products and services in any advertisement.
(n) offer lending services to customers who reside outside of the United Republic of Tanzania.
(o) use loan guarantors without having a mechanism to seek and obtain the guarantor’s consent and issuance of a written disclosure statement indicating his liability for the loan guaranteed.
(p) require the borrower to pay interest amount upfront or before the loan repayment due date.
(q) assign digital loans to third parties such as debt collectors or outsourced call centres or agents, without informing the customer before allowing such third party to contact him or her.
(r) transfer or sharing digital lending platform which has been cleared by the Bank with other persons.
(s) offer loan products and services or collect loan repayments in any currency other than Tanzanian shillings.
(t) involve in any activities that contribute to, or are associated with, Money Laundering, Terrorism Financing, or Proliferation Financing.
5. What are the other information required by the Bank of Tanzania?
There are disclosure obligations imposed on a digital lending company in Tanzania. A digital lender must indicate the type of digital lending platform for offering digital loans. For example:
(i) Mobile Application; Website; or any Other platform (to be specified).
(ii) The hosting environment or App distribution platform to be used in the issuance of digital products. Examples of App distribution platforms are; – Google Play Store and App Store.
(iii) In case the applicant has other DLP(s) that are inactive (dropped from the App distribution platform or hosting environment), then the applicant must briefly indicate the reasons for closure/inactiveness and the date of the incident.
(iv) List payment system providers/electronic money issuers/banks used/integrated or to be used/integrated into your DLP for disbursement and collection, and the effective date of the contract with each counterparty.
(v) For existing DLP, a digital lender must indicate countries in which their digital lending platform is accessed and the respective number of downloads, active users/borrowers and outstanding loan amount for each jurisdiction.
(vi) A digital lender must indicate the cost arrangement or structure applied in the applicant’s digital lending platform in detail with breakdown for:
(a) Cost Arrangement or Fee Structure:
- Interest rate amount per frequency; (i.e. per day/week/month etc.)
- All application fees and charges applied; (breakdown shall indicate the amount of fees and name if it is charged for a third party e.g. payment service providers or MNO per transaction/bundle of service)
- a loan extension fee applied if any; and
- late payment penalty rate or amount. (i.e. rate/amount charging frequency and base on which the rate will be imposed)
(b) Payment Arrangement of interest rates and all applicable fees, i.e.:
- Upfront payment;
- Payment at maturity; and
- Payment for other methods (to be specified)
(vii) A digital lender must indicate the number of instalments to settle fully the loan for each loan product. If there is more than one instalment, then the applicant must briefly indicate the interest computation method.
(viii) A digital lender must indicate the loan tenure of each loan product in their digital lending platform.
(ix) A digital lender must indicate if they use credit reports from Credit Reference Bureaus (CRBs) during the credit underwriting process? Indicate YES or NO
(x) A digital lender must indicate if they employ credit scoring techniques during the credit underwriting process? Indicate YES or NO
(xi) Does your DLP operate in Swahili and English Language (end to end) i.e. Kiswahili or English version from initial to final processes? Indicate YES or NO
(xii) Does your DLP provide loan agreements to borrowers? Indicate YES or NO.
(xiii) There are questions relating to transaction messages and communication with borrowers, namely:
(a) Does your DLP indicate the company/business name as indicated in the Bank of Tanzania’s license on the landing page and footer of all pages in the platform? Indicate YES or NO
(b) Does the content of transaction messages indicate the name of your institution as stipulated in the license issued by the Bank of Tanzania? Indicate YES or NO on each item below:
(i) OTP ( )
(ii) disbursement ( )
(iii) loan repayment ( )
(iv) marketing messages ( )
(v) any other messages, please mention.
(xiv) Do you employ a contracted agency or persons in collection, monitoring or recovery processes? Indicate YES or NO. If the answer is YES, please specify.
(xv) Indicate access rights requested by your DLPs from the customer’s device and provide brief reasons for such request. Examples of access requests are as follows: (Please indicate (✔) for accessed permission or N/A for not requested permission).
(i) Messages ( )
(ii) Contacts Lists ( )
(iii) Phone Calls/Call logs
(iv) Camera ( )
(v) Calendar ( )
(vi) Location ( )
(vii) Nearby devices ( )
(viii) Microphone ( )
(ix) Music and Audio ( )
(x) Media (Photos and Video) ( )
(xi) Social Media accounts and emails ( )
(xii) App installed ( )
(xiii) Storage/Files ( )
(xiv) List of accounts login in the phone/device ( )
(xv) Other, please specify.
(xvi) Does your DLP collect information on emergency contacts or guarantors? Indicate YES or NO.
(xvii) Does your DLP display phone numbers and emails for lodging customer complaints and queries? If YES, indicate the number and email.
Please NOTE that all the above questions must be answered by a digital lender completely and honestly by the Chairperson of the Governing Body or Sole Proprietor of the digital lending business who must sign a Declaration of accuracy of the information supplied. The Declarant must undertake, that for as long as he or she continues to be Chairperson of Governing body of the institution/Sole proprietor of the business, he or she will notify the Bank of any material changes to, or affecting the completeness or accuracy of the information supplied as soon as possible, but in any event not later than 21 days from the day that the changes come to his or her attention.
What are the Periodic Report a Digital Lending Company must submit to the Bank of Tanzania? A microfinance service provider that has obtained a no-objection letter from the Bank to offer digital loan products and services shall submit periodic reports to the Bank in the format and at the frequency prescribed by the Bank.
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About KORIAT & CO.
We are a commercial law firm with head office in Lagos, Nigeria. We assist clients from different nationalities in company registration and processing of business licence in Nigeria, Ghana, Kenya, Rwanda and Uganda. We also provide company secretarial services and general legal support for registered businesses.
The above article is not legal advice and does not automatically make our readers our clients unless they specifically instruct us to act or represent them in any way.
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