Have you heard of people facing threats, insults, or privacy invasions simply for falling behind on online loan repayment? Or perhaps you have been a victim of such behaviours by online money lenders?

INTRODUCTION

The rise of digital lending platforms has unfortunately brought with it the disturbing trend of harassment, threats, and unethical practices by non-deposit-taking microfinance service providers. These lenders often impose harsh conditions such as charging exorbitant fees or interest rates and sometimes accessing customers’ private information, without obtaining consent. To address these growing concerns, the Bank of Tanzania (BoT) issued the Guidance Note on Digital Lenders under Tier 2 Microfinance Service Providers on August 27, 2024. This regulatory intervention is intended to protect consumers and promote responsible lending practices in the digital landscape.

KEY ASPECTS OF THE GUIDANCE NOTE

1. Definition and Scope: The Guidance Note has clearly defined key terms such as App Distribution Platforms, Digital Lenders, Digital Loan Products, Digital Lending Platform, Digital Loan Services, Electronic Know Your Customer (e-KYC), Hosting Platform, and Landing Page.
2.  Introduced minimum criteria for Digital Lenders: Digital lenders are required to be licensed by the BoT as Tier 2 Microfinance Services Providers. They are also obligated to fully protect customers’ data as per the Personal Data Protection Act, 2022 and its regulations. Additionally, they must maintain robust and secure lending platforms that are accessible and tested regularly. Lenders must also display the name of the microfinance service providers as indicated in the license certificate and communicate interest rates, fees, charges, and late payment penalties on digital platforms. Moreover, digital lending platforms must provide contact information for handling customer queries and complaints and operate in Kiswahili or both Kiswahili and English
3. Outline the minimum document for a No-Objection Request: The existing microfinance service providers must apply to the Bank of Tanzania for a no-objection letter to offer digital loan products and services. These documents include a registration certificate from the Personal Data Protection Commission (PDPC), a lending policy, a duly filled questionnaire, a document showing pricing model for interest rates, late payment penalties, fees and charges to be applied and interest computation model, screenshots of the dashboard of the digital lending platform and a document showing the description of the lending platform supported by process flow and screenshots of the user interface.
4. Prohibited Activities: The Guidance Note prohibits certain activities for microfinance service providers dealing with digital lending activities. These prohibitions include but are not limited to, operating more than one digital lending platform, using a lending platform to access customer contact lists, call logs, phone messages, pictures, storage, social media accounts, emails, media, and files, or sharing personal data without BoT clearance, operationalize lending policy which has not been approved by the Bank and issuing loan agreements that are not in line with regulation 39(2) of the Microfinance (Non-Deposit Taking Microfinance Service Providers) Regulations, 2019, and Regulation 22(5) of the Bank of Tanzania (Financial Consumer Protection) Regulations, 2019. During debt collection, officers or employees are forbidden from using threats, violence, or profanities. They are also prohibited from accessing a customer’s phone book to send messages to their contacts, posting the customer’s personal or sensitive information online or on any forum, making unauthorized or unsolicited calls or messages to a customer’s phone contacts, or employing improper or unconscionable debt collection tactics, methods, or conduct.
5. Submission of Periodic Reports on Digital Lending Operations: To ensure regular and effective monitoring, the Guidance Note stipulates that once microfinance service providers have obtained a no-objection letter, they must submit periodic reports to the Bank of Tanzania (BoT) in the format and at the frequency prescribed by the Bank.

Penalties

The Bank of Tanzania (BoT) has made it clear that non-compliance with the directives outlined in the Guidance Note will lead to administrative sanctions, which may include penalties, suspension of digital lending, and revocation of the license of the Microfinance Service Providers dealing with Digital Lending business.

Conclusion

The Guidance Note is a crucial development in online lending practice as it enhances the supervision of digital lending operations. It also aims to ensure compliance with financial consumer regulations, which include transparency, pricing, debt collection practices, protection of personal data, and customer practices. By fostering a more transparent and ethical digital lending operating environment, the Guidance Note protects consumers and builds trust in the financial system. This initiative lays the groundwork for a more secure and equitable financial landscape, benefiting lenders and borrowers.

For more detailed information, you can read the full Guidance Note on Digital Lenders Under Tier 2 on the Bank of Tanzania’s website here:

https://www.bot.go.tz/Publications/Acts,%20Regulations,%20Circulars,%20Guidelines/Guidelines/en/2024082813141188.pdf

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