Tanzania Banking Act

With a view to meeting the demands of modern business practice and catering for the needs of the local and international banking sector, the government of Tanzania repealed the Banking and Financial Institutions Act 1991, Cap 342 (the "BFIA '91") and replaced it with the Banking and Financial Institutions Act 2006 (the "BFIA '06"). The bill was presented to the National Assembly by the Minister for Finance on 28 March 2006 and passed by the National Assembly on 3 March 2006. The law came into force on 5 April 2006. On 12 December 2008, the BFIA '06 was supplemented with the Banking and Financial Institutions Regulations, 2008 (the "Regulations").

The primary objective of the BFIA '06 (as stated in its "objects" and "reasons") is to establish a framework for the comprehensive regulation and supervision of banks and financial institutions in Tanzania, and to ensure the stability, safety and soundness of the financial system with the aim of reducing the risk of loss to depositors.

Being a fairly wide-ranging act, there are a number of elements of the BFIA '06 which will be of interest to those investing in Tanzania, the principal ones of which are listed below.

Licensing, Regulation and Supervision

The BFIA '06 and the Regulations vest a greater independence in the Bank of Tanzania ("BoT") than its predecessor, by granting the BoT certain powers relating to the licensing, regulating and supervising of banks and financial institutions in Tanzania. The Regulations for instance provides the BoT, amongst other things, with the power to ensure banks maintain a prescribed minimum core capital, to ensure that a bank's total capital does not fall below 12% of its total risk, to prescribe and enforce a liquid assets ratio and to enforce financial reporting to the BoT.

Grant, Suspension and Revocation of Licenses

The BFIA '06, like the BFIA '91, is the legislation which provides the BoT with its power and authority to grant, suspend and revoke licenses to banking and financial institutions engaged in banking business in Tanzania. The BoT may allow a bank or financial institution licensed by it to conduct business outside Tanzania subjects to terms and conditions set by the BoT to ensure effective supervision and compliance with the BFIA '06 and the law in that other country.

In respect of the granting of a license, whilst retaining most of the elements found in the BFIA'91, the BFIA '06 goes on to impose additional new requirements on the BoT when...