BoT Enacts Law on Change of Ownership and Closure of Business for MSPs

Prior to the publication of the Guidance Note, Tanzania’s regulatory environment for Tier 2 MSPs lacked specific guidelines on changes in ownership, license leasing, and business closure procedures. This absence of detailed directives often led to inconsistencies in operations, potentially jeopardising the interests of various stakeholders. The Guidance Note is also intended to enhance oversight over the operations and conducts of the licensed Tier 2 microfinance institutions in Tanzania.

Major Provisions of the Guidance Note

1. Definition of a Foreign-owned Microfinance Service Provider
   The Guidance Note formally defines the term Foreign owned Microfinance Service Provider to mean a microfinance service provider incorporated in Tanzania and whose majority owners or shareholders are foreigners. The classification of a foreign-owned MSP may have implications for its licensing conditions, tax obligations, and eligibility for specific financial incentives or restrictions imposed by Tanzanian authorities.
2. Closure of Microfinance Business
   The Guidance Note distinguishes between temporary and permanent closure of business operations. Temporary closure is the cessation of business operations for a period not exceeding six months. Whereas permanent closure refers to cessation of business operations beyond six months. Under the Guidance Note, MSPs are required to notify the BoT and their clients before closing their business, whether permanently or temporarily at least seven days before the closure of business of their intention to close the business. It also provides procedures for which the MSPs are to settle their statutory and bank-client obligations and liabilities, ensuring that consumers’ rights and assets are well protected.

   MSPs that had already closed operations without prior notification before the enactment of the Guidance Note were granted a 30-day moratorium period from 10 January 2025 to comply with the notification requirements.

   Failure to notify the BoT within nine months of ceasing operations may result in the revocation of the MSP’s license to undertake the microfinance business.

3. Change of Shareholding
   The Guidance Note defines a “Change of Ownership” as any transaction or event that results in the change of ownership structure or control of the MSP, which could be in form of a sale or transfer of shares to a new shareholder. The Guidance Note requires MSPs to obtain prior approval from the BoT before any change in shareholding structure takes place by way of a formal letter, annexing all necessary documentation to demonstrate compliance with regulatory requirements.
4. Transfer or Lease of a License
   The Guidance Note introduces strict control in the transfer and leasing of licenses by Tier 2 MSPs. MSPs are restricted to transfer, lease or share a license to undertake microfinance business or enter into a partnership with another person for such purposes unless prior approval from the BoT is obtained.

Implications for MSPs and Investors
Before the publication of the Guidance Note, the Microfinance Act, 2018, only provided for the closure of MSPs. The Guidance Note complements the Act by outlining procedures for license transfers of shares, leasing, sharing of licenses for Tier 2 MSPs.

Should you have any questions regarding the information in this legal alert, please do not hesitate to contact Geofrey Dimoso or Shemane Amin.

________________

Contributor

Bupe Kabeta – Associate