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Analysts laud central bank move on online lenders, but…
Analysts have welcomed the decision by the Bank of Tanzania (BoT) to impose strict conditions on online lending services. PHOTO | FILE
What you need to know:
- The Bank of Tanzania has licensed ten firms to operate online lending services under strict conditions
Dar es Salaam. Analysts have welcomed the decision by the Bank of Tanzania (BoT) to impose strict conditions on online lending services, saying it was long overdue. However, they argue that further reforms are needed to fully address the challenges posed by unregulated digital lending.
Prof Abel Kinyondo from the University of Dar es Salaam said the move was necessary to protect borrowers from exploitation, but stressed the need for more public awareness.
“BoT must empower the public to identify legally operating companies. An informed public will avoid illegal lenders because they will know where to obtain legitimate loans,” he said.
Prof Kinyondo also called for broader economic reforms to reduce the dependency on loans for survival.
“The government needs to create an economy where citizens can earn enough income without constantly relying on loans. Additionally, empowering people with skills for self-employment will reduce the demand for predatory lending services.”
Financial analysts have also highlighted the risks posed by unlicensed lenders.
Mr James Mushi, a Dar es Salaam resident who fell victim to an unregulated lender, said, “At first, it seemed so easy—no paperwork, no long waits. But the interest rates were outrageous and hidden charges kept piling up. I struggled to make payments and they harassed me with constant phone calls, even contacting my family and employer. It was humiliating and stressful.”
Another borrower, Ms Anita Mwita, a petty trader in Goba, Dar es Salaam, voiced similar concerns.
“I borrowed a small amount, but within weeks, the debt doubled due to hidden fees and high-interest rates. When I missed a payment, they started threatening me, saying they would report me as a fraud and involve the police,” she said.
Ms Mwita also condemned public humiliation of borrowers by posting their names and photos online.
Despite BoT’s efforts to regulate the industry, analysts believe enforcement remains a challenge.
“There is limited awareness among both service providers and consumers, leading to unregulated lending and predatory practices such as high-interest rates and exploitative credit terms,” Prof Kinyondo said.
The analysts were reacting to reports that the BoT has taken steps to improve regulation of online lending.
A senior officer from BoT’s Microfinance Supervision Department, Mr Deogratius Mnyamani, said in Mtwara last week that the financial services regulator has licensed ten companies to operate online lending services under strict conditions.
The conditions include a ban on accessing borrowers’ phone books to prevent unauthorized social interactions.
This move follows BoT’s decision to revoke 80 mobile loan applications that failed to comply with its guidelines, amid rising complaints of harassment from borrowers.
Many digital lenders had used aggressive tactics, including threats, to pressure borrowers into repayment.
Mr Mnyamani said that some of the new license requirements include the requiring borrowers to review loan terms before borrowing and ensuring that lenders are officially recognised by the central bank.
The approved online lenders include Y9 Microfinance, Jumo Tanzania Finance, Airpay, Savatech Financial Services Limited and Victoria Finance Limited.
Mr Mnyamani said the authorities, in collaboration with law enforcement, will take action against unlicensed microfinance providers, imposing penalties of Sh10 million or two years in prison for non-compliance.
According to him, BoT has provided financial education to over 2,000 second-tier microfinance service providers, increasing awareness of regulatory requirements. Additionally, a microfinance certification program launched in August has already seen 408 graduates trained in second-tier microfinance services.
“The achievements include positive reception of the 2018 law, strengthened collaboration between BoT and microfinance providers, increased awareness of licensing requirements,” Mr Mnyamani said.
Further achievements include compliance with regulations, reduced risks associated with unregulated lending and over 300 microfinance providers inspected.
On challenges he said that there is limited awareness among service providers and consumers, leading to unregulated lending, predatory lending practices, including high-interest rates and exploitative credit terms as well as harassment tactics used by digital lenders for loan recovery.
On future plans he said that they aim to developing a system to enhance transparency in interest rate regulations as well as identifying and eliminating unlicensed microfinance providers.
