Tanzanian Government to Regulate Digital Loans and High-Interest Rates

The Tanzanian government has announced plans to regulate digital loans and high interest rates in the country.

The Minister of Finance, Hon. Dr. Mwigulu Lameck Nchemba (MP), made the announcement in Parliament in response to a question from Hon. Shally Raymond (MP), who sought to know when mobile network operators in Tanzania will be required to provide education to consumers before issuing loans.

According to Nchemba, the Government will soon implement a digital loan issuance system that was previously announced, and when it is implemented, there will be strict adherence to the conditions of the digital loan issuance license and any necessary measures will be taken in case of violations.

According to the financial laws overseen by the Bank of Tanzania (BOT), no mobile network operator has been given a license to issue loans to consumers. For a company, institution, or individual to issue loans to consumers, they must have a license from BOT and comply with the conditions of the Banking and Financial Institutions Act, 2006 and the Microfinance Act, 2018.

Tanzania’s mobile network operators providing financial services have been given licenses to provide mobile payment services in accordance with the National Payment Systems Act, 2015, and its regulations. There are six companies, namely: M-Pesa Limited, Honora Tanzania Mobile Solution Limited (Tigopesa), Airtel Money Tanzania Limited (Airtel Money), Viettel Ecommerce Limited (Halopesa), TTCL Pesa Limited (T-Pesa), and Azam Pesa Tanzania Limited (AzamPesa).

Loans issued to consumers through mobile phones are issued through partnerships between licensed lending institutions and mobile payment service providers. This partnership involves the responsibilities of each service provider, where lending institutions issue loans in accordance with the laws and regulations of the lending license, while mobile payment service providers provide payment services, agents, and the loan issuance process.

All loans are issued through banks and microfinance institutions that reach consumers through mobile phones using mobile payment services of mobile companies. This has enabled consumers to obtain loans without the need for a bank account or collateral for the loan.

The Minister of Finance urged BOT to continue to oversee the financial sector, especially microfinance institutions and mobile payment service providers, to ensure that they adhere to the conditions of the Banking and Financial Institutions Act, 2006, the National Payment Systems Act, 2015, and the Microfinance Act, 2018.

He also advised consumers to use financial services provided by officially recognized providers by BOT to avoid using services from unrecognized providers with harsh terms and high interest rates.

Interest Rates in Tanzania

High interest rates are an issue in Tanzania, with an average lending rate of about 16%.

The interest rates applied by Microfinance Institutions (MFIs) and digital credit providers are even higher.

BOT has defined an acceptable maximum interest rate of 4% per month. Prior to this, most lenders charged an average rate of 10% per month, justifying those rates by the fact that digital loans and microloans are non-collateralized.

BOT’s Governor Emmanuel Tutuba, clarified that the Central Bank does not cap the interest rates applied. However, he stressed that it has been difficult for lenders to demonstrate interest rates exceeding 3.5% per month in their lending cost structure which includes the cost of funds, administration costs, and profit margins.