In Tanzania, through current technological advancement, individuals and businesses are able to send and receive money electronically (locally and internationally). This is made possible through various internet/web-based applications and Unstructured Supplementary Service Data technology (hereinafter referred to as “USSD”), such as, M-Pesa, Mixx by Yas and Airtel Money which are offered by electronic money issuers (hereinafter referred to as an “EMI”). An EMI, as defined by the National Payment Systems Act, Chapter 437, Revised Edition 2023 (hereinafter referred to as “the Act”), is a payment system provider that is licenced to issue electronic money and assumes responsibilities and liabilities for the electronic money issued.
An EMI can either be a bank or financial institution or a non-banking entity licenced under the National Payment Systems (Electronic Money) Regulations of 2015 (hereinafter referred to as “the Regulations”). The electronic money regime is regulated by the Bank of Tanzania (hereinafter referred to as “the BOT”).
Legal Framework in Digital Lending by EMIs.
Digital lending refers to the process of providing credit through online platforms, by bypassing traditional intermediaries. It allows users to borrow money quickly and conveniently, by utilising advanced technologies for smoother transactions. This method eliminates lengthy paperwork and creditworthiness checks, making it accessible 24/7. Banks, financial institutions and non-banking institutions must be registered as EMIs to be able to facilitate financial services through their electronic payment systems.
The legal regime for banks or financial institutions and non-banking institutions in electronic money issuance is as follows:-
Banks and Financial Institutions.
Under Regulation 3 and 4 of the Regulations, banks and financial institutions that intend to issue electronic money are required to apply to the BOT, in writing, for approval to issue money electronically. They will need to submit the necessary documents including, but not limited to, a payment system provider licence. This licence allows a bank or financial institution to have a payment system and instrument. Once the application is approved by the BOT, the bank or financial institution will receive an electronic money issuance licence.
After becoming an EMI, the bank or financial institution will automatically have the green light to incorporate digital lending in their electronic payment systems since they possess both the payment system licence and electronic money issuance licence.
Non-Banking Entities.
The procedures for registering a non-banking entity as an EMI is slightly different from those of a bank or financial institution. A non-banking entity is required to establish a separate legal entity that will issue the electronic money (Regulation 12 of the Regulations). The application shall be accompanied by different documentation including, but not limited to, a copy of the certificate of incorporation, a valid payment system provider’s licence from BOT, a valid network services and/or application services licence from the Tanzania Communications Regulatory Authority (hereinafter referred to as “TCRA”) and evidence of holding the minimum capital of Tanzanian Shillings Five Hundred Million (TZS 500,000,000) as provided under Regulation 13 and 14 of the Regulations. If all the requirements are met and the application is submitted, the BOT will grant the entity with an electronic money issuance licence.
Non-banking entities are allowed to operate as EMIs and facilitate digital lending if they possess the necessary licence from the TCRA and BOT. However, under Regulation 34 (2) of the Regulations, a registered non-banking EMI is also required to enter into partnerships with financial institutions to be allowed to provide financial services such as digital lending. This basically means that a non-banking entity cannot facilitate digital leading without having a partnership entered into with a registered financial institution.
For banks wishing to enter partnerships to facilitate digital lending with non-banking EMIs, can seek for approval from BOT and shall provide the necessary information on the loan product they wish to put in the market.
Imogen Homanga – Legal Officer
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.
