Tanzania bans unlicensed digital lenders

The Bank of Tanzania (BoT) has announced that it will no longer allow unlicensed digital lenders to operate and has told customers to use only lending services from companies with valid licenses in the East African country.

Questionable lending practices, such as shaming defaulters as well as high interest rates, led the BoT to mandate these new regulations to unregistered digital lenders.

"Pursuant to section 16(1) of the Act (Microfinance Act 2018), it is an offense to engage in the lending business without a valid license. The prohibition on carrying out lending business without a license includes granting loans through various platforms, such as digital lending," the BoT said in a notice.

The bank added that as part of the reforms, licensed platforms will be required to issue loan agreements signed by borrowers detailing terms and conditions, including total loan fees, interest rates and renewal fees for late payments.

"The general public is hereby reminded to review the loan agreement to be entered into, including understanding and acceptance of the terms and conditions of the loan, and to ensure that the lender has a valid license issued by the Bank of Tanzania," the BoT warned the public.

African crackdown on unlicensed lenders

Tanzania's crackdown on unlicensed digital lenders follows other countries like Kenya and Nigeria that have banned bogus digital lenders.

Nigeria's Federal Competition and Consumer Protection Commission (FCCPC) implemented new rules requiring digital lenders to register in August 2022.

The Central Bank of Kenya (CBK) has also been working to validate digital lenders and in March 2024, it licensed a further 19 digital lenders, bringing the total number of licensed Digital Credit Providers (DCPs) up to 51.

This followed regulations that, in October 2021, cracked down on the abuse of personal private information, unethical debt collection services and high interest rates provided for credit facilities offered through digital platforms via mobile phones and mobile money accounts.

This was because many of the loan services run on mobile applications, mobile money or USSD platforms, while convenient, raised concerns over the privacy of user data.

Kenya and Nigeria have brought in rules to better regulate digital lenders. (Source: drobotdean on Freepik)

In 2021 DCPs in Kenya were told to re-register and apply for a license. However, by September 2022, only ten digital lenders had been granted licenses.

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However, many Kenyan digital lenders have still not been granted licenses and in January 2023, some voiced their frustrations that the delay had resulted in their apps being blocked on the Google Play Store.

The complaints came after the Office of the Data Protection Commissioner (ODPC) in October 2022 audited at least 40 digital lenders for data breaches against their customers.

*Top image source: Image by DCStudio on Freepik.

— Matshepo Sehloho, Associate Editor, Connecting Africa