Highlight Notes:

• Notification Requirement: Digital lenders under Tier 2 Microfinance Service Providers (MSPs) must notify the Bank of Tanzania (BOT) about their digital lending platforms within 14 days of the Guidance Note’s issuance, with a deadline of September 10, 2024. Failure to comply may result in platform suspension.
• No-Objection Letter: MSPs must obtain a no-objection letter from the BOT within 30 days, allowing them to continue offering digital loan products and services. New loans cannot be onboarded without this letter.
• Data Migration: MSPs with multiple digital lending platforms must consolidate customer data and credit relationships into a single platform and submit it to the BOT for approval.
• Platform Discontinuation: Any discontinued digital lending platforms following data migration must be reported to the BOT and closed before the end of the moratorium period.
• Regulatory Enforcement: Non-compliance with these requirements may result in suspension of digital lending platforms or other regulatory actions by the BOT.
• Consumer Protection: The guideline enhances consumer protection by ensuring transparency, preventing predatory lending practices, and safeguarding borrowers’ rights.
• Increased Accountability: The notification and approval requirements increase MSP accountability and reduce the risk of fraud, unethical practices, and financial instability in the microfinance sector.

Responsible Lending: The BOT’s no-objection letter requirement promotes responsible and ethical lending practices, reducing over-indebtedness and boosting public confidence in digital financial services.

On August 27, 2024, the Bank of Tanzania released a guidance note addressing digital lenders operating under Tier 2 microfinance service providers. This includes non-deposit-taking microfinance providers, such as individual money lenders i.e. mobile applications, websites, and other digital platforms used for lending services as provided under Section 5(1) (b) of The Microfinance Act 2018.The Guideline sets forth clear obligations for Microfinance Service Providers (MSPs) operating digital lending platforms in Mainland Tanzania. It requires all MSPs to inform the Bank of Tanzania about every digital platform they operate within the market. This notification must be submitted within 14 days of the Guideline’s issuance, making the deadline September 10, 2024. Non-compliance with this requirement will lead to the suspension of any lending platforms operated by unlicensed or non-compliant MSPs.

Additionally, the guideline sets out compliance requirements for MSPs with existing digital loan products and services. These providers are instructed to meet the following obligations within 30 days from the date of issuance.

a) No-Objection Letter: MSPs must seek and obtain a no-objection letter from the Bank of Tanzania. This letter is contingent upon the MSP meeting the criteria outlined in the Guidance Note, which governs the continued offering of digital loan products and services.

 b) Moratorium on New Loans: MSPs are prohibited from onboarding new loans without first obtaining a no-objection letter from the Bank of Tanzania.

c) Migration of Customer Data: MSPs operating more than one digital lending platform must migrate all customer data and credit relationships into a single platform. This consolidated platform must then be submitted to the Bank of Tanzania for approval.

 d) Discontinuation of Platforms: Any digital lending platform that has been discontinued following the migration of customer data must be reported to the Bank of Tanzania. MSPs are required to ensure that such platforms are closed immediately before the end of the moratorium period.

In the event of non-compliance, the Bank of Tanzania may enforce the guideline by suspending digital lending platforms or taking other regulatory actions.

The Guideline offers various key benefits, both for the financial sector and the broader economy. Firstly, It provides Enhanced Consumer Protection by ensuring that digital lending platforms operate transparently and adhere to regulatory standards, protecting consumers from predatory lending practices, hidden fees, and unfair terms. Additionally, By requiring microfinance service providers (MSPs) to notify the Bank of Tanzania about their digital platforms and obtain necessary approvals, the guideline safeguards borrowers’ rights and ensures that only compliant and licensed entities operate in the market.

Secondly, the notification and approval requirements increase the accountability of MSPs by subjecting them to regulatory scrutiny. This helps prevent fraud, unethical practices, and the operation of unregulated or illegal lending platforms. Moreover, The guideline helps to stabilize the microfinance sector by ensuring that only financially sound and compliant institutions operate in the market. This reduces the risk of financial instability caused by unregulated and unsupervised lending activities. By imposing clear rules and deadlines, the guideline minimizes the likelihood of market disruptions and builds trust in the financial system.

Most importantly, the requirement for MSPs to obtain a no-objection letter from the Bank of Tanzania ensures that only responsible and ethical lending practices are followed. This encourages MSPs to offer loans that are appropriate for borrowers’ needs and financial situations, reducing the risk of over-indebtedness. Additionally, by ensuring that digital platforms comply with regulatory standards it also enhances public confidence in digital financial services, leading to greater adoption and usage.
In conclusion, The Bank of Tanzania’s Guidance Note on Digital Lenders Under Tier 2 Microfinance Service Providers, 2024, establishes a new regulatory framework for MSPs in Mainland Tanzania. Compliance with the requirements of the Guidance Note is mandatory and time sensitive. MSPs must act swiftly to ensure they meet the obligations set out by the Bank of Tanzania to continue operating their digital lending platforms legally.

Disclaimer: This article is authored by Husna Fulwala, a legal intern from Rive & Co, a new and innovating law firm as a result of the partnership between ABC Attorneys, Stallion Attorneys and Sepia Attorneys, built on the foundation of trust, credibility, and novelty, offering expert legal solutions.  This Article is for informational purposes only and should not be construed as legal advice. It is recommended to consult with a qualified legal professional for advice specific to your situation.