Microfinance Regulations for Non-Deposit-Taking Service Providers 2019

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Microfinance Regulations (Non-Deposit-Taking Service Providers) Government Notice No. 998 (Continued)

UNITED REPUBLIC OF TANZANIA MICROFINANCE REGULATIONS (NON-DEPOSIT-TAKING SERVICE PROVIDERS), 2019

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[SUBSIDIARY LEGISLATION]

This edition of the Microfinance Regulations (Non-Deposit-Taking Service Providers), 2019, is an Official Translation certified by the Office of the Attorney General in accordance with section 84 of the Interpretation and General Provisions Act, Cap. 1. Dodoma, ADELARDUS L. KILANGI ……………., 2020 Attorney General

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Microfinance Regulations (Non-Deposit-Taking Service Providers) Government Notice No. 998 (Continued)

GOVERNMENT NOTICE No. 679 Published on 13/9/2019 MICROFINANCE ACT, (CAP. 407)

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REGULATIONS

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(Made under section 60)

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MICROFINANCE REGULATIONS (NON-DEPOSIT-TAKING SERVICE PROVIDERS), 2019

TABLE OF CONTENTS PART ONE: PRELIMINARY CONDITIONS

1. Name.
2. Application.
3. Interpretation.

PART TWO: ISSUANCE OF LICENSES 4. Establishment. 5. Name of the microfinance service provider. 6. License application. 7. Integrity of shareholders and owner. 8. Financial capacity. 9. Business premises. 10. Character and experience. 11. Handling of applications. 12. Transition period. 13. License. 14. Refusal of license application. 15. Moving to Class 1. 16. Moving to Class 2 from another class.

PART THREE: OPERATION OF NON-DEPOSIT-TAKING SERVICE PROVIDERS UNDER CLASS 2 17. Duties of the Board of Directors or management body. 18. Appointment of Tanzanians. 19. Operation of the microfinance service provider. 20. Employment of non-citizens. 21. Permitted activities. 22. Prohibited activities. 23. Cash deposits, guarantees or mandatory reserves. 24. Accounting books, records and financial year. 25. Preparation and submission of accounts. 26. Transparency of financial statements. 27. Internal auditor. 28. Appointment of internal auditor. 29. External auditor. 30. External auditor meeting employees. 31. Submission of deficiency reports. 32. Submission of audit report. 33. Changing the external auditor. 34. Term of external auditor. 35. Submission of loan reports. 36. Approval to exchange loan information.

PART FOUR: LENDING ACTIVITIES 37. Lending policy. 38. Loan applications. 39. Loan contract. 40. Submission of reasons for loan application refusal. 41. Loan guarantee. 42. Loan repayment. 43. Adjustment of loan terms. 44. Overdue loans. 45. Classification of groups and loan portfolio.

PART FIVE: SUPERVISION OF NON-DEPOSIT-TAKING SERVICE PROVIDERS 46. Minimum capital requirement. 47. Minimum asset liquidity ratio. 48. Inspection. 49. Dividend payments. 50. Submission of reports. 51. Taking over supervision. 52. Limit of supervision.

PART SIX: CONSUMER PROTECTION 53. Transparency in loan issuance. 54. Complaint and dispute resolution system. 55. Transparency for loan guarantors. 56. Collection or monitoring of loans. 57. Financial education. 58. Consideration of consumer protection regulations.

PART SEVEN: GENERAL PROVISIONS 59. Promotion of private lender to company status. 60. Administrative measures. 61. Appeal.

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Microfinance Regulations (Non-Deposit-Taking Service Providers) Government Notice No. 998 (Continued)

GOVERNMENT NOTICE No. 679 Published on 13/9/2019 MICROFINANCE ACT, (CAP. 407)

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REGULATIONS

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(Made under section 60)

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MICROFINANCE REGULATIONS (NON-DEPOSIT-TAKING SERVICE PROVIDERS), 2019

PART ONE: PRELIMINARY CONDITIONS Name 1. These regulations shall be known as the Microfinance Regulations (Non-Deposit-Taking Service Providers), 2019. Application 2. These regulations shall apply to non-deposit-taking service providers operating in Class 2. Interpretation 3. In these regulations, unless the context otherwise requires: “Act” means the Microfinance Act; “Bank” means as interpreted in the Bank of Tanzania Act; “capital” means the property of shareholders or permanent owners held in a system of ordinary shares issued and paid, preference shares, capital assistance, reserves and surplus accumulation; “credit company” means as interpreted in the Act; “credit information bureau” means a specialized institution that collects and sells credit information for individuals and institutions; “digital lender” means a microfinance service provider that provides loan services starting from handling applications, approving, issuing and repaying loans via network channels; “financial institution” means as interpreted in the Act; “foreign service provider” means a microfinance service provider registered in Tanzania where most of its owners or shareholders are foreigners; “person” means an individual, institution or company; “small housing loan” means a secured or unsecured loan provided to households in rural or urban areas to build, repair or improve housing; “private lender” means a person licensed to carry on the microfinance business of lending money under the Act; “MEMARTS” means regulations and operational guidelines for credit companies; “Minister” means the Minister responsible for financial matters; “owner” means an individual who owns the microfinance lending business; “major shareholder” means the owner or shareholder owning shares with voting rights not less than five percent in Class 2; “Class 2” means a type of non-deposit-taking microfinance service providers including lending companies, financial institutions, small housing loan companies, private lenders and digital lenders.

PART TWO: ISSUANCE OF LICENSES Establishment 4. A person intending to carry on a Class 2 microfinance business must be registered under the Companies Act or any other relevant law; (a) if a private lender, register business name as sole owner under the Business Licensing Act. Name of microfinance service provider 5. The business name of a Class 2 microfinance service provider shall include among other words “microfinance”, “finance”, “financial services”, “loans” or “small loans”. License application 6.-(1) A person intending to carry on a Class 2 microfinance business as a microfinance service provider must apply for a license from the Bank. (2) Subject to sub-regulation (1), license applications shall be as classified in the First Schedule. (3) Applications referred to under sub-regulation (1) must be signed by the applicant or an authorized signatory and attached with- (a) non-refundable application fee of fifty thousand shillings for institutions or companies; (b) non-refundable application fee of thirty thousand shillings for private lenders; (c) documents and information listed in the Second Schedule; and (d) any required documents or information. (4) Applications submitted by foreign service providers must, in addition to requirements under sub-regulation (3), include- (a) a training plan showing specific timeframes for providing microfinance knowledge and expertise to Tanzanian staff; and (b) a succession plan showing procedures, timeframes and content for how Tanzanian staff will assume senior leadership positions of the microfinance service provider. Integrity of shareholders and owner 7. The Bank shall consider the history of proposed shareholders or owners when evaluating the character and integrity of the applicant in past and current business activities. Financial capacity 8.-(1) The Bank shall conduct an assessment of the applicant’s financial capacity. (2) The applicant’s financial capacity shall be measured by- (a) net asset value; (b) capital ratio as shown in the accounts; or (c) ability to access financial support if the microfinance service provider requires a capital increase. (3) The Bank shall be satisfied that the ownership of the microfinance service provider does not originate from borrowed funds. Business premises 9.-(1) Each Class 2 microfinance service provider- (a) must have business premises with a specific address for conducting its microfinance business; and (b) must clearly display its business name at the business premises. (2) A microfinance service provider intending to open, transfer or close its business premises must apply for and obtain Bank approval before doing so. (3) A microfinance service provider that fails to comply with the requirements of this regulation shall be deemed to have committed an offense. Character and experience 10.-(1) The Bank shall conduct an assessment to satisfy itself that proposed Board members, Chief Executive Officer or owner of the microfinance service provider possess suitable and eligible characteristics based on criteria classified in the Third Schedule. (2) Without affecting sub-regulation (1), the Bank shall assess proposed Board members, Chief Executive Officer or owner regarding their experience and capacity to operate a microfinance business. (3) The Bank may conduct background checks on proposed Board members, Chief Executive Officer or owner and interview them regarding past performance, characteristics and skills. (4) For the purposes of facilitating the assessment referred to in this regulation, proposed Board members, Chief Executive Officer and owners shall complete the questionnaire classified in the Fourth Schedule of these regulations. Handling of applications 11.-(1) The Bank shall process complete applications within sixty days after receipt and, if satisfied, issue a license. (2) Where the Bank receives incomplete license application documents before processing, it shall require the applicant to- (a) submit missing or additional information or documents; and (b) correct or rectify deficiencies relating to the license application. (3) Where the applicant fails to meet the conditions for license issuance, the Bank shall refuse the application. (4) Before issuing a license, the Bank may inspect the business premises, communication equipment, accounting systems and internal control systems of the microfinance service provider. Transition period 12.-(1) In accordance with section 57 of the Act, a person who was operating a microfinance business before the commencement of the Act and fails to meet license conditions within twelve months after the Act comes into force must close the business and cease operating a microfinance business. (2) A person who violates this regulation shall be deemed to have committed an offense and, upon conviction, shall be punished in accordance with section 16 of the Act. License 13.-(1) Where the criteria and conditions for license issuance are fulfilled, the Bank shall issue a license to the microfinance service provider in the format shown in the Fifth Schedule of these regulations. (2) The issued license shall remain valid unless suspended or revoked according to the procedure specified in the Act. (3) A license issued under these regulations shall expire if the microfinance service provider fails to commence business within six months from the date of issuance, unless the Bank extends this period in writing. Refusal of license application 14.-(1) The Bank may refuse to issue a license where- (a) the applicant fails to meet the criteria and conditions for the license; or (b) the applicant provides false or misleading information. (2) Where the Bank refuses to issue a license, it shall notify the applicant in writing within seven days from the date of decision and explain the reasons for refusal. (3) An applicant whose application is refused may reapply, provided that the deficiencies leading to the initial refusal have been addressed and corrected. Moving to Class 1 Government Notice No. 298 of 2014 15. A microfinance service provider may move from Class 2 to Class 1 after submitting applications and meeting the criteria specified in the Bank and Financial Institutions (Microfinance Services) Regulations, 2014. Moving to Class 2 from another class 16.-(1) A microfinance service provider intending to move to Class 2 must- (a) meet the conditions specified under regulation 6; (b) submit Board of Directors or partners’ resolutions approving the move to Class 2; and (c) meet the minimum capital requirement as specified in these regulations. (2) The Bank may direct a Class 2 microfinance service provider to move to Class 1 when satisfied that the provider meets the moving criteria.

PART THREE: OPERATION OF NON-DEPOSIT-TAKING SERVICE PROVIDERS UNDER CLASS 2 Duties of Board of Directors or management body 17.-(1) A Class 2 microfinance service provider, except private lenders, must have a Board of Directors or management body. (2) The Boards of Directors or management bodies referred to under sub-regulation (1) shall, among other duties, be responsible for- (a) appointing the Chief Executive Officer; (b) approving business plans and strategies; (c) approving policies on loans, risk, reporting, human resources and other policies; (d) monitoring management trends and performance; (e) maintaining and overseeing a clear division of duties and responsibilities; and (f) ensuring that the microfinance service provider complies with all relevant laws and regulations. Appointment of Tanzanians 18. A Class 2 microfinance service provider shall appoint at least two Tanzanians to the Board of Directors. Operation of microfinance service provider 19. A Class 2 microfinance service provider must have management that shall, among other duties, be responsible for- (a) implementing strategies in a manner that reduces risks associated with those strategies; (b) ensuring efficiency in internal control and high integrity standards; (c) establishing clear accountability and authority limits; (d) ensuring that operational and reporting systems are robust, reliable and facilitate communication; (e) maintaining accurate financial records and preparing timely financial statements; (f) preparing and submitting management reports on time; (g) implementing recommendations specified in external and internal audit reports and directives issued by the Bank; and (h) ensuring that laws, regulations, policies and procedures are observed. Employment of non-citizens 20.-(1) A microfinance service provider, unless it employs a non-Tanzanian or contracts any person, must obtain Bank approval. (2) Subject to sub-regulation (1), the number of non-citizens employed in the institution must not exceed five at any time. (3) Regardless of sub-regulation (2), the Bank may, upon receiving applications from a microfinance service provider, approve an additional non-Tanzanian considering the following- (a) shortage of qualified Tanzanians for the proposed position; (b) difficulty of work and duties to be performed; (c) approval from the Tanzania Investment Centre; (d) emergency circumstances allowing an additional person; and (e) duration the person is expected to stay in the institution and provide knowledge transfer to Tanzanians. Permitted activities 21. A microfinance service provider is permitted to engage in any of the following activities- (a) providing microfinance loans to individuals, groups and small institutions, including microfinance guarantees; (b) providing small housing loans to individuals; (c) distributing government program loans through agents, groups and individuals; (d) maintaining and operating various types of accounts in banks and financial institutions in Tanzania; (e) operating credit bureau services, equipment financing loans, partnership lending procedures and loan project management; (f) providing professional advice to clients on investment in small businesses, operations, marketing, technical and administrative matters; (g) providing insurance services as agents of insurance companies; (h) capital investment; (i) acting as a bank agent; and (j) any other activities as permitted by the Bank. Prohibited activities 22. Unless permitted by the Bank, a licensed microfinance service provider is prohibited from engaging in any of the following activities- (a) accepting any type of deposits from the public; (b) foreign exchange business; (c) operation of international trade business; (d) management of guarantee business; (e) loan and payment cards; (f) payment orders and fund transfers; (g) any business other than providing financial products and services to its clients; and (h) other activities as specified by the Bank.

Cash deposits, guarantees or mandatory reserves 23.-(1) A microfinance service provider receiving cash deposits, cash guarantees, loan insurance guarantees or mandatory reserves must open separate accounts for the purpose of holding all received cash as deposits, guarantees or mandatory reserves. (2) Subject to sub-regulation (1), all received cash shall not be used by the microfinance service provider for lending or other activities and shall be returned to the borrower after completing loan repayment. (3) Without affecting previous regulation conditions, private lenders shall not receive cash deposits, cash guarantees, loan insurance guarantees or mandatory reserves.

Accounting books, records and financial year 24.-(1) A microfinance service provider shall keep accurate accounting books and other records regarding its activities, which are sufficient to show and explain its transactions and financial position. (2) The accounting books and records referred to under sub-regulation (1) must- (a) clearly state all transactions, including loan applications and all loan transactions; (b) enable the financial position of the microfinance service provider to be accurately determined at any time; (c) allow financial statements to be prepared on time; and (d) include basic documents that will be kept to show information on- (i) total funds received and used regarding income and expenditures made; (ii) all sales and purchases and other transactions; and (iii) assets and liabilities of the microfinance service provider. (3) The financial year of a microfinance service provider shall commence on January 1 and end on December 31 each year.

Preparation and submission of accounts 25. Each microfinance service provider must, in each financial year, prepare accounts and within four months after the end of the financial year submit to the Bank certified copies of annual accounts with an audit report.

Transparency of financial statements 26.-(1) Subject to section 42 of the Act, each microfinance service provider shall display at its business premises copies of recently audited annual financial statements. (2) The audited financial statements referred to under sub-regulation (1) must- (a) include balance sheets, income and expenditure statements, cash flow statements and statements of changes in equity; (b) be displayed prominently at the main business premises, branches and any areas where services are provided to the public; and (c) cover the full year.

Internal auditor 27.-(1) A microfinance service provider shall appoint an internal auditor to assess the adequacy and efficiency of internal control, risk management and governance systems. (2) The appointed internal auditor under sub-regulation (1) must, at a minimum, hold an accounting certificate or equivalent qualification and have at least one year of experience in the relevant field. (3) The internal auditor shall be accountable to the Board of Directors or owner. (4) The internal auditor’s report shall contain audit findings, recommendations and management responses. (5) The duties of the internal auditor shall include- (a) examining funds at any time without notice; (b) reconciliation of bank accounts; (c) reconciliation between general ledger balances and sub-ledger balances; (d) examining loan journals to assess compliance with policies, procedures, regulations and the Act; (e) review of assets and investments of the microfinance service provider; (f) examining adequacy of loss provisions arising from non-performing loans; (g) examining compliance with policies and procedures; (h) examining compliance with the Act and other relevant laws; (i) evaluating completeness of delegation and accountability to the Board of Directors and other committees; (j) assessing reporting system capacity; (k) assessing the accuracy and...