Published by Kemilembe Barongo
Microfinance is a category of financial services targeting individuals and small businesses who lack access to conventional banking and related services. Over the years a substantial part of the population have turned to Microfinance Businesses for financial services as the alternative for banks and other financial institutions due to extremely high interest rates and shortage of funds.
The Central Bank of Tanzania is the governing authority for microfinance businesses in Tanzania. The business has a number of governing regulations including, The Microfinance (Non-Deposit Taking Microfinance Service Providers) Regulations 2019 (GN No. 679 of 2019), Microfinance (Savings and Credit Cooperative Societies) Regulations 2019 (GN No. 675 of 2019), The Microfinance (Community Microfinance Groups) Regulations 2019 GN No. 678 of 2019.
According to the Microfinance Act 2018 (MFA) , Microfinance business in Tanzania is classified into 4 tiers being:
Tier 1 –Banks and microfinance Banks (Deposit Taking Microfinance institutions).
Tier 2 –Credit companies and financial organizations (Non-Deposit Taking Microfinance Service Providers).
Tier 3 –Savings and Credit Cooperatives Societies (SACCOS)
Tier 4 –Community microfinance groups
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. Furthermore, the Bank of Tanzania can access strong rooms and safes in order to retrieve information required to perform its regulatory responsibilities.
The Regulations also set out local content requirements for foreign microfinance service providers. Non-deposit taking microfinance service providers are required to have at least two Tanzanian members on the board of directors and have to obtain the prior approval of the Bank of Tanzania with regard to the employment of non-Tanzanians.
The regulations make it illegal for microfinance service providers to operate without a valid licence and anyone acting contrary to the same may be fined up to TZS 100 million or be subjected to imprisonment of up to five years or both.