Tanzania’s Central Bank will no longer allow unlicensed digital lenders to operate in the country and has told customers to look out for valid licenses before patronising loan companies.
The Bank of Tanzania’s (BoT) new restrictions are believed to be linked to questionable lending practices like debt-shaming of defaulters, and high interest rates.
The directive will affect over 100 unregistered digital apps that provide instant loans to about 30% of adult mobile phone users who don’t have regular income or relationships with traditional financial institutions like banks, saccos, and cooperative societies.
“In accordance with Section 16 (1) of the Act [Microfinance Act 2018], it is an offence to engage in the business of lending without a valid license. The prohibition to engage in lending business without a license includes the provision of loans through various platforms such as digital loans,” BoT said in a notice.
As part of the reforms, licensed platforms will be required to issue borrowers signed loan agreements detailing the terms and conditions including total fees for the loans, interest rates, and rollover fees for late payments.
Currently, the apps don’t provide detailed agreements as users get the loans with a click of a button.
“The General Public is hereby reminded to review the loan agreement to be entered, including understanding and agreeing to the loan terms and conditions, and be satisfied that the lender has a valid license issued by the Bank of Tanzania,” BoT cautioned.
BoT’s decision follows a similar move by neighbouring Kenya which banned over 100 unlicensed digital credit providers. It reduced the number of authorised mobile loan apps to 50.
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