BoT, partners ink deal to bolster tier two microfinance

DAR ES SALAAM: BANK of Tanzania (BoT) in collaboration with the Tanzania Association of Microfinance Institutions (TAMFI) and the Tanzania Microfinance Union (TAMIU) has signed an agreement to implement a self-regulatory framework to strengthen and formalising tier two microfinance service providers.

The Memorandum of Understanding (MoU) marks the official rollout of a regulatory arrangement first agreed upon in March this year.

The BoT Governor Mr Emmanuel Tutuba said in Dar es Salaam on Tuesday that the goal is to create a more enabling policy and legal environment for the rapidly growing microfinance sector in the country.

“This is part of our joint efforts to establish a friendly policy and legal framework for the microfinance sector, which has seen remarkable growth in recent years.

“With the growing number of second-tier microfinance providers, it’s our duty to create a supportive environment that enhances service quality and accessibility,” said Mr Tutuba at the launch event.

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He added, “This move is a key step toward improving efficiency and accountability in the financial sector.”

The central bank introduced microfinance oversight regulations in 2019 to better organise and license providers, ensuring stronger consumer protection.

Under the new agreement, TAMFI and TAMIU will monitor their members’ conduct, enforce best practices and uphold ethical standards to build professionalism and trust.

The sector has grown to over 2,600 institutions nationwide, playing a vital role in supporting individuals and businesses without access to traditional banking.

Despite its importance, the microfinance sector continues to face challenges, particularly low financial literacy.

BoT Governor Tutuba noted that many clients borrow impulsively without proper planning, leading to financial strain.

“Some people take out loans just because they see a sign saying ‘Loans Available.’ This is not sound financial behavior,” he said.

Under the new agreement, TAMFI and TAMIU must establish effective grievance redress systems to ensure services achieve their intended impact.

Governor Tutuba also directed all second-tier microfinance institutions to join either TAMFI or TAMIU within six months, warning that non-compliance will result in license revocation.

TAMFI Chairperson Devotha Minzi welcomed the initiative as a major milestone, saying it will enhance efficiency and accountability in the sector.