The Deposit Insurance Board (hereinafter referred to as "the DIB") is an institution responsible for safeguarding depositors of Tanzanian banks and financial institutions.
The establishment of DIB is outlined in section 37(1) of the Banking and Financial Institutions Act Number 5 of 2006 (hereinafter referred to as "the BFIA"). The DIB carries out various functions, including policy formulation, management and control of the Deposit Insurance Fund (hereinafter referred to as "the DIF"). Its primary objectives are to ensure payout to depositors and streamline the process of liquidation of failed banks and financial institutions. These efforts aim to foster public confidence in the banking sector and enhance financial stability within the country.
The DIB activities are under the stewardship of the Board of Directors who are tasked ensure effective and efficient management and control of the DIF. On the other hand, the DIF is an insurance fund managed by the DIB. The funds in the DIF are used to pay out depositors arising from the failure of a bank or financial institution.
In order for the DIB to perform its functions, every bank and financial institution licensed by the Bank of Tanzania (hereinafter referred to as "the BoT") to carry on banking business in Tanzania Mainland and Zanzibar is a contributor to the DIF. The contributions are made in the form of annual premiums at the rate that averages the total deposit liabilities of the banks and financial institutions.
The DIF prompts payment of premium by issuing a notice to the banks and financial institutions that specifies the amount to be paid and the period within which they should make such payment. Failure of a bank or financial institution to effect payment to the DIF as notified would attract a penalty interest.
Unlike other entities that are at liberty to appoint a liquidator, it is not the same for banks and financial institutions. Section 41(a) of the BFIA stipulates that, where a bank or financial institution becomes insolvent, as determined by the BoT, the latter may appoint the DIB to be a liquidator.
Upon the DIB being appointed as the liquidator, it will take over the management of a bank or financial institution to determine its assets and liabilities and thereafter reimburse insured depositors. The DIB in its capacity as a liquidator carries out the determination of assets and payment of liquidation proceeds to creditors of a failed bank or financial institution in accordance with the law. As of 3rd March, 2023, the maximum amount payable to depositors by the DIB from the DIF is Tanzania Shillings Seven Million Five Hundred Thousand (TZS 7,500,000).
By Government Notice Number 157 of 2023 dated 3rd March, 2023, the DIB increased the rate of payout to depositors during the liquidation window of a failed bank and financial institution from Tanzania Shillings One Million Five Hundred Thousand (TZS 1,500,000) to Tanzania Shillings Seven Million Five Hundred Thousand (TZS 7,500,000) where a bank or financial institution has failed without having to wait for the liquidation process to commence.
However, depositors with amounts beyond Tanzania Shillings Seven Million Five Hundred Thousand (TZS 7,500,000) in the account of a failed bank or financial institution will have to wait for the liquidation process to commence for each of them to be compensated.
Since its establishment, the DIB has been appointed to liquidate nine banks, namely, the Greenland Bank (T) Limited, Delphi’s Bank (T) Limited, FBME Bank Limited, Mbinga Community Bank PLC, Njombe Community Bank Lmited, Meru Community Bank Limited, Covenant Bank for Women Limited, Kagera Farmers’ Cooperative Bank Limited and Efatha Bank Limited.
This enhancement will enable depositors to receive a higher amount of compensation for their lost deposits in the event of a failure of a bank or financial institution from the amount previously set out. This is a positive development because it indicates that there are measures in place to mitigate their financial losses and provide some degree of relief during challenging circumstances. This latest measure aims at instilling confidence in the banking system and assures depositors that their funds are protected up to a certain threshold, which is typically determined by the deposit insurance coverage provided by the DIB.
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.
