Licensing of non-deposit microfinance service providers’ business under ‘tier 2’ category which includes credit companies, financial organizations, housing microfinance companies, individual money lender and digital microfinance lenders is governed by the Microfinance Act, Act 10 of 2018 (hereinafter referred to as “the Microfinance Act”) and Microfinance (Non- Deposit Taking Microfinance Service Providers) Regulations, 2019 (hereinafter referred to as “the Regulations”).

A.  Who may apply for the licence?

According to the Regulations, a sole proprietor or partnership with a business name registered under the Business Licensing Act, or local/foreign owned company incorporated under the Companies Act of Tanzania, may apply to the Bank of Tanzania (herein referred to as “BoT”) for a licence to operate a microfinance business under tier 2. 

It is the requirement of the Regulations that, either of these words, i.e. “microfinance”, “finance”, “financial services”, “credit” or “microcredit” must be included in the applicant’s business name.

Thus, before applying to BoT, the applicant must first register business name or incorporate a company.

B.  What is the minimum required capital for microfinance service provider under Tier 2? 

Regulation 46 of the Regulations provide that, the minimum capital required for commencement and continuance of microfinance service provider business under tier 2 is Tanzania Shillings Twenty Million.

C.  How to apply for a licence of microfinance service provider under tier 2?

The Applicant is required to make an application in a prescribed form as per the Regulations. The Application will be accompanied with the followings: –

General list:

1. A proof of payment of a non-refundable application fee;
2. Proof of source and availability of capital;
3. Declaration that the funds were not criminally obtained or associated with any criminal activity
4. A copy of latest audited balance sheet, income statement and cash flow of an existing microfinance service provider;
5. Lending policy containing at-least minimum requirements provided by the Regulations
6. Certified Tax Identity certificate and Tax clearance certificate;
7. Certified copies of academic and professional certificates of members of the Board and Chief Executive Officer;
8. Proof of citizenship of every subscriber, every proposed director, CEO and individual money lender, CV, certified copy of passport, or National ID, birth certificate and two recent passport size photographs.
9. Dully filled questionnaire for directors, owner, Chief Executive Officer under the fourth schedule to the Regulation.

If applicant is an entity, following will be required in addition of the general list, that is: –

1. Certified copy of certificate of incorporation or registration;
2. Certified copy of Memorandum and Articles of Association;
3. Board Resolution authorizing application for license;
4. List of members of Board, subscribers and CEO;
5. Credit reference report for every significant subscriber, or member of the Board and CEO;
6. Where applicable, certified copies of tax clearance certificate for applicant significant subscriber or members of the Board and CEO.
7. certified copies of latest annual returns of an existing microfinance service provider.

If applicant is an Individual, following will be required in addition of the general list, which includes: –

1. Certified copy of certificate of a business name registration and
2. Credit reference report from Credit Reference Bureau

In addition to above requirement, foreign owned applicant is required to submit the following: –

1. Home country Regulator’s approval;
2. Training plan indicating specific time framework for imparting microfinance skills and expertise to Tanzanian staff.
3. A succession plan and strategies on mode, time and contents of the extent to which Tanzanian staff shall occupy senior management positions in the microfinance service provider.

D.  Note that: –

1. BoT shall, within sixty days after receiving complete application, determine the application, and upon being satisfied issue a licence.
2. The Applicant is required to commence business within six months from the date the licence is issued failure of which the licence will be deemed to have expired unless BoT, in writing extends the time for commencement of business.
3. The licence remains in force unless revoked or suspended by BoT according to laws.
4. Any person who operate any microfinance business under tier 2 without licence commit an offence and shall, upon conviction be liable to a fine of not less than twenty million shillings and not exceeding one hundred million shillings or to imprisonment for a term of not less than two years but not exceeding five years or to both.

Disclaimer:

This Article is prepared for general information purposes only and should not be treated or relied upon as advice unless agreed to in writing by Litcot Attorneys (“the Firm”). The Firm assumes no liability whatsoever for any usage other than that specified for herein. For legal advice, please contact the Firm, or your legal attorneys.