Other than the Bank of Tanzania’s ("BoT”) role of formulating and implementing monetary policy, among others, it has also been entrusted with the responsibility of monitoring of foreign loans into Tanzania. As foreign loans continue to rise, the BoT, then, considered it crucial to carefully monitor these debts. This oversight is aimed at ensuring that the economy can fulfill its foreign debt obligations, particularly those denominated in foreign currency.
This oversight involves the formal registration of foreign loans and the issuance of a Debt Registration Number ("DRN"). DRN serves as the key reference for disbursement, debt servicing, and any other transactions associated with that specific foreign credit arrangement exceeding 365 days.
Previously, the Foreign Exchange Circular, Number 6000/DEN/EX.REG/58 of September 1998 established the initial requirement for DRN. This directive mandated that foreign loans with a duration surpassing 365 days be registered and allocated a DRN. Currently, the Foreign Exchange Regulations of 2022[1] (the “Foreign Exchange Regulations”) has further solidified this requirement and provided additional requirements.
While the borrower bears the commercial responsibility of obtaining a DRN, it is the duty of the borrower's commercial bank to inform the BoT. The primary responsibility of the commercial bank is to supervise the registration process and engage the BoT. This involves providing the BoT with all the necessary documentation.
The BoT mandates that foreign loan agreements adhere to specific standards. They have also provided guidelines outlining the essential clauses that should be included, among others, the requisites are as follows: -
It is worth noting that the Foreign Exchange Regulations empower the BoT to potentially reject the registration of foreign loan agreements if the interest and associated charges do not conform to present conditions.
The primary concern is the overall interest percentage, rather than the interest formulation. The BoT has no issues with an interest formulation agreed upon by the parties. As of November, 2023, the prevailing interest rate for a loan with a duration of 1 year is 9.08%, 1-2 years is 6.99%, 2-3 years is 8.21%, 3-5 years is 7.28% and over 5 years is 7.55% per the BoT monthly economic bulletin for December 2023.
Over time, there are numerous instances where, in the process of handling foreign loan agreements, the BoT has directed adjusting the interest percentage to align with current market conditions, specifically in terms of the percentage rate. Therefore, one should rely on the BoT's monthly economic review reports to gauge the average foreign currency interest lending rate.
By Joel Kimale- Advocate
Note: This is not a legal opinion, and the contents hereof are not meant to be relied upon by any recipient unless our written consent is sought and explicitly obtained in writing.
[1] Section 25 as amended by the Foreign Exchange (Amendment) Regulations of 2023
