As Tanzania’s digital lending sector experiences rapid expansion, it is crucial for Tier 2 Microfinance Service Providers (MFSPs) to stay informed about regulatory guidelines, especially as digital financial services revolutionize access to credit. This guide explores the essential regulatory criteria, prohibited practices, required documentation, and reporting obligations for digital lenders as outlined by the Bank of Tanzania.
1. Introduction: The Growth of Digital Microfinance in Tanzania
Digital loan services have been transformative, granting quick, convenient access to credit without extensive paperwork or time-consuming procedures. This shift has made financial services accessible, significantly boosting financial inclusion and economic growth in Tanzania. However, along with these benefits, the industry has encountered challenges, such as high fees, abusive debt collection tactics, and data privacy concerns. These issues risk the credibility of the digital lending sector and present financial vulnerabilities for consumers.
In response, the Bank of Tanzania (BoT) has introduced comprehensive guidelines to regulate and ensure fair practices within the digital lending ecosystem, ensuring consumer protection and fostering a safe, transparent environment for borrowers and lenders alike.
2. Key Definitions
The guidance document offers several essential definitions for stakeholders in the digital lending space:
- Digital Lenders: Licensed MFSPs that offer loan services, from application to repayment, entirely through digital channels.
- Digital Lending Platform (DLP): Online or mobile channels used by MFSPs to provide digital loan products.
- Electronic Know Your Customer (e-KYC): Digital methods of verifying customer identities to minimize in-person interactions.
3. Minimum Criteria for Digital Lenders
Digital lenders must adhere to strict standards to qualify for BoT approval:
- Licensing: All digital lenders must be licensed under Tier 2 of the Microfinance Act, 2018. Click this link for a guide on how to register and get license for tier 2 microfinance business in Tanzania.
- Platform Security: MFSPs should maintain robust, secure lending platforms with transparent data permissions, OTP messages, and customer information protection compliant with the Personal Data Protection Act, 2022.
- Interest Rates and Transparency: Loan details, including interest rates, fees, and penalties, must be clearly displayed on the platform in simple language, preferably in Kiswahili, which serves as the default.
- Competent Personnel: Providers must employ staff with adequate ICT skills for platform operation and customer support.
4. Documentation Requirements for a No Objection Letter
Licensed MFSPs planning to offer digital loans must apply for a no-objection letter from the BoT. This application includes:
- Detailed Platform Overview: Description of the platform, process flows, terms of use, privacy policy, and screenshots.
- Operational Environment: Screen captures showing platform dashboard details.
- Pricing Model: Information on fees, penalties, and interest computation methods.
- Data Privacy Certification: Proof of compliance with the Personal Data Protection Act.
These documentation standards ensure that each MFSP’s digital lending platform meets the Bank’s consumer protection standards.
Reference
GUIDANCE NOTE ON DIGITAL LENDERS UNDER TIER 2 MICROFINANCE SERVICE PROVIDERS, 2024
 Kessy Juma is the founder of Miamia Trading Company (miamiatz). He is a Techpreneur with roots in accountancy. He believes that any business is good as long it caters the right market using the right strategy. 
 |