The Bank of Tanzania has been lauded for its commitment to reduce regulatory burdens for financial startups in the country, after introducing a sandbox regulation framework for pilot innovators.

•Sandbox regulations are meant to test innovations and their accompanying models within a controlled environment to ensure consumers are protected and financial stability is maintained in the long run.
•Bank of Tanzania’s Fintech Regulatory Sandbox Regulations 2024 will highlight eligibility criteria for startups that can utilize it, procedures for application, as well as testing period of 9 months and associated environment.
•Fintech Regulatory Sandbox has been approved by the country’s Minister of Finance, a helpful move that will see Tanzania’s fintech’s increase from their current figure 842.

“These regulations encourage innovation in Fintech sector while maintaining necessary oversight to ensure financial stability and consumer protection. The collaborative approach helps identify potential issues and mitigate risks before a full market launch,” said Tanzania Startup Association in a statement.

In June 2021, the association convened a public-private dialogue with various government agencies and ministries to discover strategies to promote an enabling environment for startups to thrive, without undoing the necessity of government regulation in the sector.

The prevailing theme in dialogue were immense challenges startups faced when trying to seek compliance within the Tanzanian market due to heightened regulations which early-stage innovators were incapable of mounting. It was agreed by Ministry of Information, Communications, and IT (MICIT) that sector-specific regulatory sandboxes would be presented.

Bank of Tanzania (BoT) began preparing its sandbox regulatory framework in 2023, tailored specifically for fintech’s which represent 8.83% of the country’s startup ecosystem and employ more than 9,000 young people.

BoT sandbox will only accept innovators who can duly verify they own intellectual property rights to services they intend to test. They are also expected to submit a financial solution risk profile indicating potential risks, causes, effects and control measures meant to pacify these risks. They must also present unique solutions and resources available for testing.

When testing period is complete, BoT evaluates a report on whether the product’s operation within the sandbox was successful and positive. For this reason, innovators are expected to enumerate their ongoing challenges and relations with customers.

“In light of these developments, TSA calls on various sector regulators across various industries including health, agriculture, energy, insurance, transport, and telecommunications, to establish sector-specific regulatory sandboxes,” TSA stated.

“Such sector-specific regulatory sandboxes will streamline regulatory process for innovators, enhance cross-sectoral learning, and support development of solutions that address Tanzania’s diverse challenges,” TSA concluded.

But Wait…

IMF published a paper titled ‘Institutional Arrangements for Fintech Regulation: Supervisory Monitoring’ which scrutinized the efficacy of fintech regulatory sandboxes in lightening regulations and enhancing private sector-government engagement.

According to Bretton Woods institution, sandboxes maximize risks for innovators when they are not properly designed. Innovations could fare well within restricted environment but encounter disaster when unleashed to the market.

While sandboxes are an improvement of governments’ dedication to support innovation and reduce regulation, IMF has suggested minimal fintech regulation should be as mainstream as possible. This will allow these innovations to optimize their full potential and adapt to legitimate challenges in the market.