New Bill seeks to tighten the noose on loan sharks

Monday November 12 2018


By Mnaku Mbani@TheCitizenTZ

Dar es Salaam. The government is tightening the noose on loan sharks through a newly proposed Microfinance Act, whose Bill’s first reading was conducted in Parliament last week.

The proposed legislation targets individuals and credit companies that lend money to business operators, many of which have turned predatory and inflate credit costs.

According to the Bill tabled for debate in the National Assembly in Dodoma, lenders who operate without being so-licensed by the Bank of Tanzania (BoT) will on conviction face imprisonment of up to five years, a fine of up to Sh10 million – or both penalties.

For banks and credit companies which lend money without being duly licensed by BoT, the penalty on conviction is up to five years imprisonment, or Sh100 million fine – or both.

This is according to Section 27 of the proposed Microfinance Act, which roughly states that no person shall carry out any microfinance business, unless such person is licensed in accordance with the provisions of the proposed legislation.

Apparently, there are thousands of individuals and institutions out there who offer short-term credit without being licensed. This is a gross violation of the regulatory frameworks that are already in place – especially considering that the backstreet ‘lenders’ are unregulated and uncontrolled in terms of lending rates.


The Bill also requires product and service providers in microfinance to comply with consumer protection principles. These include – but are not limited to – vetting of standard contracts, as well as transparency on interest rates, debt repayment and recovery processes.

The Bill categorises microfinance institutions into four tiers. Tier One consists of banks and other financial institutions, while Tier Two is for non-deposit taking microfinance companies such as credit companies.

In Tier Three are savings and credit societies (Saccos), while Tier Four comprises community financial groups, community-based organisations, and individual money lenders.

The Bill prohibits individuals from carrying out any microfinance business without being licensed – contravention of which is a punishable offence.

The Bill proposes penalties for lenders who contravene the law in this regard, and prescribes penalties therefor on conviction as follows:

Tiers 1 & 2 offenders: a fine not less than Sh20 million, but not exceeding Sh100 million, or to imprisonment of not less than two years, but not exceeding five years.

Tier 3 offenders: a fine of up to Sh50 million, or a 2-5 years jail term, or to both fine and imprisonment.

For Tier 4 offenders, a fine of up to Sh50 million, or imprisonment of not less than three months and not exceeding five years – or both.

“Service providers must comply with the Anti-Money Laundering Act in a bid to ensure proper licensing, regulation, monitoring and supervision of microfinance business in Tanzania,” the Bill reads in part.

‘Microfinance business’ is defined in the proposed Bill to mean “the deposit and non-deposit taking business – which also includes savings, loans, transfers and payment services, as well as financial education.