CHAPTER 342
BANKING AND FINANCIAL INSTITUTIONS ACT

[PRINCIPAL LEGISLATION]

ARRANGEMENT OF SECTIONS

   Section

Title

PART I
PRELIMINARY PROVISIONS

   1.   Short title.

   2.   Application.

   3.   Interpretation.

PART II
LICENSING, REGULATION AND SUPERVISION TO VEST IN THE BANK

   4.   Licensing, regulation and supervision to vest in the Bank.

   5.   Underlying objectives of the Act.

PART III
LICENSING, OWNERSHIP AND STRUCTURE OF BANKS AND FINANCIAL INSTITUTIONS

   6.   Prohibition on operating without a licence.

   7.   Power of the Bank to grant licence.

   8.   Application for a licence.

   9.   Investigation and review of application.

   10.   Grant or denial of a licence.

   11.   Duration, suspension and revocation of a licence.

   12.   Persons not eligible to take part in the management and boards of banks and financial institutions.

   13.   Restriction on the use of the word ‘bank’.

   14.   Designation of micro-finance companies and housing finance companies.

   15.   Restrictions on ownership of banks and financial institutions.

PART IV
CAPITAL RESERVES AND ACCOUNTS

   16.   Compliance with capital requirements.

   17.   Capital requirements.

   18.   Transitional Provisions.

   19.   Restriction on dividends.

   20.   Computation of capital and financial ratios.

   21.   Liquid assets ratio.

   22.   Accounts and independent audits.

   23.   Internal controls and internal audits.

PART V
ACTIVITIES AND INVESTMENTS

   24.   Permissible activities.

   25.   Large exposures.

   26.   Connected lending.

   27.   Establishment, relocation and closure of banking units.

   28.   Limitation on investment in companies engaged in activities not authorized.

   29.   Limitation on investment in fixed assets.

   30.   Bank to authorize voluntary mergers.

PART VI
SUPERVISION, COORDINATION AND CONTROL

   31.   Power to conduct examinations of banks and financial institutions.

   32.   Submission and publication of information.

   33.   Power of the Bank over banks and financial institutions.

   34.   Prompt corrective action.

   35.   Power of the Bank with respect to affiliates and cross-border supervision.

PART VII
THE DEPOSIT INSURANCE FUND

   36.   Establishment of the Fund.

   37.   Deposit Insurance Board.

   38.   Contributions to the Fund.

   39.   Protection of deposits and payments out of the Fund.

   40.   Identification of institutions whose deposits are insured.

   41.   Role of the Deposit Insurance Board as Liquidator.

   42.   Annual report of the Deposit Insurance Board activities.

PART VIII
SPECIAL DUTIES OF BANKS AND FINANCIAL INSTITUTIONS

   43.   Prohibition on taking deposits while insolvent.

   44.   Exhibition of licences.

   45.   Exhibition of financial statements.

   46.   Bank to deal with abandoned property.

   47.   Abandoned property.

   48.   Fidelity and secrecy.

   49.   Fair lending and collection practices.

PART IX
LIQUIDATION, SEIZURE AND REORGANIZATION

   50.   Voluntary liquidation.

   51.   Duties of a bank or financial institution on voluntary liquidation.

   52.   Notice of voluntary liquidation.

   53.   Rights of depositors and creditors.

   54.   Distribution of assets on voluntary liquidation.

   55.   Seizure during voluntary liquidation.

   56.   Seizure in other circumstances.

   57.   Consequences of seizure.

   58.   Powers of the Bank upon seizure.

   59.   Management by the Bank.

   60.   Bridge bank or financial institution.

   61.   Compulsory liquidation.

   62.   Judicial review.

PART X
REPRESENTATIVE OFFICES OF FOREIGN BANKS OR FINANCIAL INSTITUTIONS

   63.   Representative offices of foreign banks or financial institutions.

PART XI
MISCELLANEOUS PROVISIONS

   64.   Declaration of bank holidays.

   65.   Penalty for doing unauthorized business.

   66.   Default fines.

   67.   Civil money penalties.

   68.   Power of the Governor on waivers.

   69.   Immunity.

   70.   Restrictions on employment.

   71.   Regulations, directives, and circulars.

   72.   Repeal.

CHAPTER 342
THE BANKING AND FINANCIAL INSTITUTIONS ACT

An Act to provide for comprehensive regulation of banks and financial institutions; to provide for regulation and supervision of activities of savings and credit co-operative societies and schemes with a view to maintaining the stability, safety and soundness of the financial system aimed at reduction of risk of loss to depositors; to provide for repeal of the Banking and Financial Institutions Act, (Cap. 342) and to provide for other related matters.

[1st July, 2006]
[G.N. No. 85 of 2006]

Acts Nos.
5 of 2006
11 of 2010
13 of 2015

PART I
PRELIMINARY PROVISIONS (ss 1-3)

1.   Short title

   This Act may be cited as the Banking and Financial Institutions Act.

2.   Application

   (1) This Act shall apply to Tanzania Mainland as well as to Tanzania Zanzibar.

   (2) The provisions of this Act shall apply to all banks and financial institutions, and where there is a conflict between this Act and any provision of any law establishing a bank or financial institution, the provisions of this Act shall prevail.

   (3) The Bank may, by notice published in the Gazette, order that the provisions of this Act or any part thereof shall, subject to such terms and conditions as the Bank may impose, apply to institutions involved in the business of financial intermediation but not in the business of banking.

   (4) In exercising the power under subsection (3), the Bank shall regulate and supervise the activities of all savings and credit cooperative societies and schemes whose deposits have surpassed an amount equivalent to the minimum core capital for a micro-finance company.

   (5) The savings and credit cooperative societies and schemes shall be regulated by the Bank in accordance with the regulations made in respect of micro-finance companies.

   (6) For purposes of compliance with subsection (4), the Bank may source a public or private body and devise mechanism for the expeditious identification of such societies and schemes.

3.   Interpretation

In this Act, unless the context requires otherwise–

   "affiliate" means a company that directly or indirectly controls, or is under common control with, a bank or financial institution;

   "Bank" has the meaning ascribed to it by the Bank of Tanzania Act *;

   "bank" means an entity that is engaged in the banking business;

   "banking business" means the business of receiving funds from the general public through the acceptance of deposits payable upon demand or after a fixed period or after notice, or any similar operation through the frequent sale or placement of bonds, certificates, notes or other securities, and to use such funds, in whole or in part, for loans or investments for the account of and at the risk of the person doing such business;

   "control" shall be presumed to exist when a person directly or indirectly–

   (a)   owns, controls, or has the power to vote more than fifty percent of the voting shares of another person;

   (b)   controls in any manner the election of a majority of the directors of another person; or

   (c)   has the power to exercise a controlling influence over the management or policies of another person;

   "core capital" or "tier 1 capital" means permanent shareholders’ equity in the form of issued and fully paid ordinary shares, and perpetual non-cumulative preference shares, capital grants and disclosed reserves less year to date losses, goodwill organization, pre-operating expenses, prepaid expenses, deferred charges, leasehold rights and any other intangible assets;

   "credit reference bureau" means an entity specialized in the collection and sale of credit performance information for individuals and companies;

   "deposit" means a sum of money paid on terms which–

   (a)   require it to be repaid, with or without interest or premium of any kind, and either on demand or at a time in circumstances agreed by or on behalf of the person making the payment and the person receiving it; and

   (b)   is not referable to the provision of property or services or the giving of security, whether or not evidenced by any entry in a record of the person receiving the sum or by any receipt, certificate, note or other document, and references in this Act to money deposited and to the making of a deposit shall be construed accordingly;

   "director" means any person by whatever title or designation known, carrying out or empowered to carry out functions in relation to the direction of a bank or financial institution which are substantially the same as those carried out by a member of board of directors of a company incorporated under the Companies Act * and Companies Decree;

   "disclosed reserves" include all reserves created or increased by appropriations of retained earnings (after deducting all expenses, provisions, taxation, and dividends) or other surplus such as share premiums, retained profit, general reserves and legal reserves, if such disclosed reserves are permanent and unencumbered and thus able to absorb losses;

   "effective date" means the date on which this Act comes into operation;

   "effective interest rate" means the true cost of funds for a borrower from a bank or financial institution which may be higher, equal to or lower than the nominal interest rate depending on the method used to calculate the amount of interest due or accrued;

   "entity" means corporation, partnership, trust, association, joint venture, pool, syndicate, sole proprietorship, unincorporated organization, or any other form of undertaking that is not specifically listed herein but that is commonly recognized as an entity; and, unless the context indicates to the contrary, includes any Government or government agency or instrumentality;

   "financial institution" means an entity engaged in the business of banking, but limited as to size, locations served, or permitted activities, as prescribed by the Bank or required by the terms and conditions of its licence;

   "financial intermediation" means the lending, investing or placement of funds or securities or both, received, acquired or obtained from the general public or from a well-defined group of persons by way of deposit, borrowing, contribution, premium or in a fiduciary capacity, either for the account of the person receiving such funds or securities or for the account of others;

   "first class international bank" means an international bank that has a minimum long-term rating by internationally recognized rating agencies of "A" or above;

   "Governor" has the meaning ascribed to it by the Bank of Tanzania Act *;

   "housing finance company" means a financial institution incorporated as a company limited by shares to undertake primarily a mortgage finance business with households in rural and urban areas of Tanzania Mainland and Tanzania Zanzibar;

   "indexed interest rate" means a rate that is not fixed but varies in line with changes in the reference rate;

   "individual" means a natural person;

   "insolvency" means total liabilities of a bank or financial institution exceed its total assets, as determined by the Bank;

   "micro-enterprise" means a small personal and family business that operates in the informal sector with no formal accounting or financial records and whose real assets, if any, can hardly be pledged or reasonably accepted as collateral;

   "micro-finance company" means a financial institution incorporated as a company limited by shares formed to undertake banking business primarily with households, small holder farmers and micro-enterprises in rural or urban areas of Tanzania Mainland and Tanzania Zanzibar;

   "Minister" means except where otherwise specified, the Minister responsible for financial matters of the United Republic;

   "off balance sheet exposure" means all items not shown on the balance sheet but which constitute credit risk or other risks as determined by the Bank; and such items include guarantees, acceptances, performance bonds, letters of credit, interest and exchange rate related items, and other off balance sheet items deemed by the Bank to constitute risks;

   "officer" means the Chief Executive Officer of a bank or financial institution, official of lower rank down to the assistant head of a department or branch or their equivalent, and any member of a permanent committee or body (including the Regional Board) whose duties include function of management such as those ordinarily performed by regular officers and anyone whose duties as an officer are defined in the articles of association or who is generally known to be an officer of the institution either through announcement, representation, publication or communication made by the institution;

   "person" means an individual or an entity;

   "place of business" means a branch or office of a bank or a financial institution including a mobile office open to the public;

   "reference rate" means an average interest rate that is indicative of overall market conditions or that is appropriate to a particular line of business, calculated and published by the Bank on a periodic basis;

   "savings and credit cooperative society" or "savings and credit scheme" means a society or scheme established under the applicable law for cooperatives or other societies, whose principal objectives are to encourage thrift among its members and to create a source of credit for its members;

   "significant interest" means a holding of five per cent or more of the voting shares of a bank or financial institution;

   "small holder farmers" means farmers who undertake small scale farming without definite capital and whose real assets are not traditionally acceptable as collateral;

   "subsidiary" means a company that is owned or controlled by another company;

   "supplementary capital" or "Tier 2 capital" means general provisions which are held against future, presently unidentified losses and are freely available to meet losses which subsequently materialize, subordinated debts, cumulative and redeemable preferred stocks, and any other form of capital as may be determined and announced from time to time by the Bank;

   "total capital" means the sum of core capital and supplementary capital;

   "total risk weighted assets and off-balance sheet exposures" means total assets and off-balance sheet exposures adjusted in relation to the risks of the different categories of assets and off-balance sheet exposures as may be prescribed by the Bank; and

   "unsecured" in relation to advances or credit facilities means advances or credit facilities granted without security, or in the case of any advance or credit facility granted against security, any part of such advance or credit facility which at any given time exceeds the market value of the assets comprising the security given or which exceeds the valuation acceptable to the bank or financial institution whenever the bank or financial institution deems that no ascertainable market value exists for the said assets; and for the purposes of this definition, the Bank may prescribe the terms and conditions under which a third party guarantee may be considered as security.

PART II
LICENSING, REGULATION AND SUPERVISION TO VEST IN THE BANK (ss 4-5)

4.   Licensing, regulation and supervision to vest in the Bank

   (1) Notwithstanding any provision of any other law, the power relating to the licensing, regulation and supervision of all banks and financial institutions in the United Republic that are subject to this Act is hereby vested in the Bank.

   (2) Without prejudice to the generality of the power conferred on the Bank, the Bank shall have power to–

   (a)   grant licences;

   (b)   carry out inspections over the operations of all banks or financial institutions in accordance with the provisions of this Act;

   (c)   require any bank or financial institution within such time as it may stipulate, to furnish any information or to comply with any order, directive or determination issued or made by the Bank pursuant to all the powers of the Bank conferred on it under this Act; and

   (d)   require any bank or financial institution to provide periodical written reports at such times and in such manner as may be prescribed by the Bank.

5.   Underlying objectives of the Act

   The primary objectives of supervision and regulation of banks and financial institutions by the Bank are to maintain the stability, safety and soundness of the financial system and to reduce the risk of loss to depositors.

PART III
LICENSING, OWNERSHIP AND STRUCTURE OF BANKS AND FINANCIAL INSTITUTIONS (ss 6-15)

6.   Prohibition on operating without a licence

   (1) A person may not engage in the banking business or otherwise accept deposits from the general public unless that person has a licence issued by the Bank in accordance with the provisions of this Part.

   (2) Any person who contravenes the provisions of this section shall be guilty of an offence and on conviction shall be liable to a fine not exceeding twenty million shillings or to imprisonment for a term not exceeding five years or to both such fine and imprisonment.

   (3) Any body corporate which contravenes the provisions of this section and every director and every officer who is in default thereof shall be guilty of an offence and on conviction shall be liable to a fine not exceeding twenty million shillings.

   (4) Every director and every officer who is in default shall be liable to imprisonment for a term not exceeding five years unless such director or officer proves that the contravention occurred without his knowledge or consent; save that it shall be no defense for a director or officer to prove that the contravention occurred without his knowledge if, having regard to the duties of his office, he ought to have known the contravention.

7.   Power of the Bank to grant licence

   (1) The Bank may, upon application made in pursuance of the provisions of this Act, grant a licence to undertake the banking business to an entity formally established in accordance with the Companies Act *, Companies Decree, Cooperative Societies Act, 1986 or the Cooperative Societies Act, 2003.

   (2) The licence shall permit a bank or financial institution to conduct banking business in the United Republic, subject to such terms and conditions as the Bank may require.

   (3) The licence may permit the conduct of business outside the United Republic, subject to such terms and conditions as the Bank may prescribe, to ensure effective supervision, compliance with this Act and the requirements of law in such jurisdiction other than the United Republic.

8.   Application for a licence Act No. 13 of 2015 s. 50">

   (1) Every application for a licence shall be made in writing or in electronic form and shall include–

   (a)   applicant’s proposed memorandum and articles of association or other charter or instrument of formation required by applicable law;

   (b)   a statement of the address of the head office, location of the principal and other places where it proposes to do business and, in the case of a mobile agency, the area to be served;

   (c)   the name and address of every subscriber, shareholder, board directors, Chief Executive Officer and any officer directly reporting to the Chief Executive Officer;

   (d)   information that may be prescribed by the Bank for purposes of assessing solvency and trustworthiness of each shareholder with a significant interest; and

   (e)   such financial data, business plans and other documents and information as the Bank may require in order to conduct the investigation during review of the application.

   (2) The application and every document submitted with an application shall be signed by the directors of the applicant together or by any officer legally authorized to do so.

9.   Investigation and review of application

   (1) The Bank shall conduct an investigation to satisfy itself as to–

   (a)   the completeness and validity of the documents submitted;

   (b)   the solvency and trustworthiness of subscribers and shareholders;

   (c)   the character and experience of the subscribers, shareholders, board directors, Chief Executive Officer and any officer directly reporting to the Chief Executive Officer;

   (d)   the adequacy of its capital structure;

   (e)   the convenience and needs of the community it intends to serve;

   (f)   the prospects for profitable operation; and

   (g)   the ability of the applicant to comply with the requirements of this Act and to conduct business in a sound manner.

   (2) In reviewing the application, the Bank may, in addition, take into account–

   (a)   the extent to which the intended lending policies, procedures and internal controls of the applicant are designed to promote sound financing of economic activities in underserved communities;

   (b)   the extent to which the intended training and employment programmes of the applicant are aimed at promoting professionalism in the financial sector; and

   (c)   such other matters as the Bank may deem necessary and appropriate for carrying out the objectives of this Act.

10.   Grant or denial of a licence

   (1) Within ninety days following the receipt of an application or, where further information has been required, after receipt of such information, the Bank shall either grant the licence or reject it.

   (2) The Bank shall only grant a licence when it is satisfied that the applicant has met the licensing criteria under this Act and any other requirement specified by the Bank.

   (3) The Bank may, in any case where it grants a licence, impose such terms and conditions as it may deem appropriate, including temporary or permanent restrictions regarding the total amount of credit accommodations or the engagement in any number of activities or operations.

   (4) Whenever an application is rejected, the Bank shall provide the applicant a written explanation of the grounds upon which the rejection is based.

   (5) An applicant whose application has been rejected may reapply, if the deficiencies that formed the basis for rejection of the initial application or subsequent review have been corrected or otherwise addressed.

11.   Duration, suspension and revocation of a licence

   (1) The licence, once issued, shall remain in force unless suspended or revoked in accordance with the provisions of this Act.

   (2) The Bank may suspend the licence of a bank or financial institution if–

   (a)   the Bank determines that a bank or financial institution has failed to meet any of the minimum capital requirements; or

   (b)   the Bank is of the opinion that the affairs of the bank or financial institution are being conducted in a manner that is detrimental to the interests of its depositors.

   (3) The Bank may revoke the licence of a bank or financial institution if such bank or financial institution–

   (a)   voluntarily requests revocation;

   (b)   fails to commence operations within twelve months from the date the licence was granted unless such period is extended in writing by the Bank;

   (c)   fails to comply with prudential requirements;

   (d)   provided false or misleading information when applying for a licence;

   (e)   fails to comply with the terms and conditions of the licence or any remedial measures required under this Act;

   (f)   is engaged in a pattern of unsafe or unsound practices that threaten its financial condition or is detrimental to the interests of the depositors;

   (g)   has refused to permit an inspection or to provide information required by the Bank or is otherwise in breach of any of the provisions of this Act or any regulations made thereunder;

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