Tanzania Strengthens Regulations On Digital Lenders To Protect Consumers

This initiative aims to address several critical concerns that have emerged regarding the operations of digital lending platforms in the country.

Tanzania is looking to crack down on dodgy digital lenders. Photo Credit: Cyprus Mail

The Bank of Tanzania is set to implement stricter regulations on non-deposit digital lenders, with a particular emphasis on Tier 2 microfinance firms. This initiative aims to address several critical concerns that have emerged regarding the operations of digital lending platforms in the country.

Over the past two years, excessive fees and interest rates, abusive debt recovery practices, and severe harassment of borrowers have become increasingly alarming issues associated with these financial entities. Additionally, the lack of adequate privacy measures and poor identification methods for service providers have contributed to significant consumer distress. The situation has prompted the Bank of Tanzania to respond decisively, following similar regulatory actions taken by other African nations, such as Kenya and Nigeria, to curb the operations of unregulated digital lenders.

In its August communiqué, the Bank of Tanzania underscored the necessity for consumer protection, market stability, and preservation of the microfinance subsector’s reputation. As a part of this regulatory framework, the Bank has issued a Guidance Note specifically directing Tier 2 Microfinance Service Providers engaged in digital lending to ensure compliance with established requirements.

The directive states: “Following the issuance of the Guidance Note, the Bank of Tanzania commands all Tier 2 Microfinance Service Providers conducting, or intending to conduct, business in digital lending to adhere to the stipulated compliance measures.” Noncompliance with this instruction may result in administrative penalties, suspension of digital lending operations, or even the revocation of licensure for offending institutions.

Furthermore, in May of this year, the Bank cautioned against the operations of unlicensed online lenders and advised potential borrowers to engage only with entities that possess valid operating licences in Tanzania. This step is indicative of a broader move to safeguard consumers against predatory lending practices that have proliferated in the absence of stringent oversight.

As Tanzania embarks on this enhanced regulatory pathway, it reinforces its commitment to fostering a safe and reliable financial landscape. The measures are not merely reactive but are crucial for the long-term sustainability of the microfinance sector within the country’s evolving economic framework. The regulatory examples set forth by Nigeria and Kenya serve as critical reference points for Tanzania as it seeks to rectify the challenges posed by unregulated digital lending.