Foreign Loans And The Process Of Obtaining A Debt Record Number From Bank Of Tanzania

As an international law firm operating in Tanzania, we are often asked to provide advice and work on transactions involving international lenders providing debt facilities to corporate borrowers in Tanzania. An issue which comes up regularly relates to the issuance of a debt record number (DRN) by the central bank, Bank of Tanzania (BoT). In this month's finance update we look at what the registration process entails from a transactional perspective in order to clarify some of the confusion surrounding this issue.

Background for registration with BoT

Amongst Tanzanian corporates, raising debt finance through traditional bank lending on a bilateral or syndicated basis for business expansion or to meet working capital requirements is on the rise. We are seeing an increasing trend of borrowers approaching international banks and other offshore financial institutions, rather than domestic lenders, to meet their funding requirements. The two main reasons for this are (i) pricing and (ii) lending limits - the domestic loan market is more expensive and still developing its appetite for leverage.

Primarily, BoT has been entrusted with the responsibility of monitoring the issuance of foreign debt into Tanzania. The policy driver behind this role stems from the Government's ambition to "ensure that the economy has the capacity to honour its debt obligations". The message, therefore, is that the Government of Tanzania is willing to take steps forward to liberalise the Tanzanian economy with a view to stimulating growth in the private sector by allowing corporates to borrow from international banks and investors as long as the underlying transactions are closely monitored. It is worth mentioning that the Government has openly declared that any information collected in respect of foreign debt raised by the private sector is strictly used for statistical and analytical purposes and can only be published in aggregate form in order to preserve the privacy of individual borrowers.

What does a borrower and its commercial bank need to do to ensure the DRN is issued in a timely manner?

As highlighted above, it is important that a potential borrower begins the process of registering the loan with BoT as early as possible in order to avoid any potential pitfalls or delays with funding. With this in mind, it is prudent for a borrower to get in touch with their respective commercial bank's relationship director to inform them of the terms of the debt package being...