This article provides an overview of the key changes introduced by the Finance Act, No. 6 of 2024 to the banking sector in Tanzania. The Finance Act was enacted on 30 June 2024 and came into operation on 1 July 2024. It introduces significant amendments made to several laws, among which are those pertinent to the banking sector in Tanzania, reflecting the Government of Tanzania's ongoing efforts to strengthen the regulatory framework and enhance financial governance. These changes will affect banks, financial institutions, businesses, and individuals engaged in banking and finance activities across the country.
The legislation amended by the Finance Act and affecting the banking sector are:
- The Bank of Tanzania Act, No. 5 of 2006 (the Bank of Tanzania Act);
- The Banking and Financial Institutions Act, No. 12 of 2006 (the Banking and Financial Institutions Act); and
- The Microfinance Act, No. 10 of 2018 (the Microfinance Act).
The Bank of Tanzania Act
Section 26 of the Bank of Tanzania Act mandates the Bank of Tanzania (the BoT) the sole right to issue bank notes and coins which will be the only legal tender in Tanzania. The Finance Act has added subsection (2) to section 26 of the Bank of Tanzania Act, making it an offence to transact using any currency other than Tanzanian Shillings. This subsection specifically states as follows:
‘Save as otherwise prescribed by the Minister [of Finance] in the regulations, a person who transacts using any other currencies other than the legal tender issued by the Bank [of Tanzania], commits an offence.’
The Minister of Finance has not yet issued the anticipated regulations to prescribe the exceptions indicated in the Finance Act.
Furthermore, the Finance Act amends section 42(2) of the Bank of Tanzania Act to authorise the BoT to publish the rates of interest, return or profit for rediscounting instruments and for granting loans or advances to banks or financial institutions.
The Banking and Financial Institutions Act
Section 4 of the Finance Act amends section 24(1)(g)(iv) of the Banking and Financial Institutions Act allowing banks and financial institutions to engage in trading for their own account or for the account of customers in exchange and interest, profit or return instruments as one of the permissible activities that a licensed bank or financial institution may engage in, directly or through a separately incorporated subsidiary as determined by the BoT subject to any limitations in the licence issued.
In accordance with section 46 of the Banking and Financial Institutions Act, banks and financial institutions must surrender abandoned property to the BoT at the end of each calendar year. The Finance Act has amended section 46(3) of the Banking and Financial Institutions Act to specify the manner for the BoT to dispose the abandoned properties surrendered to it by a bank or financial institution as follows:
- 90 per cent of the abandoned properties must be submitted to the Consolidated Fund; and
- 10 per cent of the remaining abandoned properties must be deposited in the General Reserve Fund maintained by the BoT.
The provisions referenced above will come into operation on 1 January 2025.
Additionally, the abandonment period has been amended from 15 years to 10 years as per section 6 of the Finance Act. As a result, banks and financial institutions are obligated to track and manage abandoned properties within a shorter timeline to ensure compliance, and customers must take timely action to retain their assets. Any abandoned property will not be presumed to have been abandoned if, within 10 years of the date of deposit, payment of funds or issuance of instruments, the owner has:
- increased or decreased the amount of the deposit or funds or presented the passbook or other record for the crediting of interest or dividends;
- corresponded in writing with the bank or financial institution concerning the matters; or
- otherwise indicated an interest in the items as evidenced by a memorandum written by the bank or financial institution concerning the matters.
The Microfinance Act
The Finance Act amends section 4(3)(a) of the Microfinance Act to include receiving money by way of interest on return or profits, not just deposits, as a microfinance business. This amendment allows microfinance institutions to offer a broader range of financial products, including investment accounts and profit-sharing schemes, and accommodates Islamic financial products, which are prohibited under Islamic law from earning interest but can now generate returns through profit sharing, rent and other means that do not involve interest. This promotes greater financial inclusivity and market expansion.
Conclusion
The amendments brought forward by the Finance Act are designed to promote financial inclusion and market expansion. Particularly, the introduction of returns or profits which allows for the inclusion of Islamic financial products and therefore, attracting a broad range of investors and clients. These amendments are key to contributing to a more inclusive economic environment..
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