The Bank of Tanzania (BoT) has published regulations to protect borrowers from abusive digital lending practices of tier-2 microfinance institutions, as well as improving transparency in the sector.
- •Digital lenders are required to display interest rates, fees, and charges, payment penalties, loan limits, and product tenures on their platforms to guide customers who wish to apply loans.
- •This will protect customers from pursuing loan products blindly, furnishing regulators with information in case customers complain that they were overcharged or exploited during repayment.
- •The digital lending platforms must also protect customers’ data in compliance with the relevant laws, as well as indicate the name of the microfinance service provider as registered by the central bank.
“A microfinance service provider must have a robust and secure lending platform for conducting digital lending operations with respective products. The referred platform shall be available and can be tested,” the Bank of Tanzania said.
The platforms shall also use clear and simple Kiswahili or English, display contacts such as phone numbers and emails, and employ competent and ICT-savvy staff to handle technical support for customers.
“A microfinance service lender that has obtained a no-objection letter from the Bank to offer digital loan products and services, shall not operate more than one digital platform,” the Bank stated.
“However, a digital lending platform can offer more than one digital loan product or service,” it continued.
Digital lenders who wish to apply for a no-objection letter from the Bank of Tanzania are required to present screenshots of the user interface, its terms and conditions, lending policy, and pricing models of their products.
Microfinance institutions have been warned against accessing customers’ contact lists or social media accounts, which the Bank believes can be used to frustrate customers when repayment of loans is delayed.
The guidelines have been issued in cognition of the rapid growth of digital lending in Tanzania. Normally, tier-1 microfinance banks accept deposits while issuing loans. Those in tier-2 provide loans without necessarily requiring deposits. For this reason, a new layer of supervision was needed.