Tanzania’s Central Bank has taken action against predatory loans by putting in place safeguards to protect consumers from dishonest lending practices.
To protect borrowers, especially those more likely to be taken advantage of by high interest rates and unfair terms, the Central Bank has put strict rules in place.
Unlicensed loan apps have been specifically banned from the financial market. This is a big step towards bringing more people into the financial system and protecting consumers.
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Predatory Loans: A Threat to Financial Stability
Fraudulent borrowing has long been a problem worldwide. Lenders often take advantage of at-risk individuals by charging them ridiculously high interest rates and secret fees. Many illegal lending apps in Tanzania use pushy marketing and unclear loan terms to take advantage of people who don’t know what’s going on.
Many people who borrow money quickly get stuck in loops of debt and can’t get out of the grips of greedy lenders. The Tanzanian Central Bank has taken a strong stand against predatory loans because it knows these practices hurt people’s finances.
The order will affect more than 100 digital apps that aren’t registered but offer instant loans to around 30% of adult users of mobile phones who don’t have a regular source of income or contact with a traditional bank, savings and loan association, or cooperative society.
“Under section 16(1) of the Act (Microfinance Act 2018), it is an offence to engage in the lending business without a valid licence. The prohibition on carrying out lending business without a license includes granting loans through various platforms, such as digital lending,” the BoT said in a notice.
Under the regulations, licenced platforms must provide loan agreements signed by borrowers, including loan costs, interest rates, and late payment fees.
Currently, the apps don’t provide detailed agreements as users get the loans with a click of a button.
“The Public is at this moment reminded to carefully read the loan agreement that they are about to sign, making sure that they fully understand and agree to all of the loan’s terms and conditions, as well as being sure that the lender has a valid licence from the Bank of Tanzania,” the BoT warned.
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The Impact of Tanzania’s Initiative on Predatory Loans
Tanzania’s exclusion of unlicensed lending applications supports financial inclusion and consumer protection by targeting predatory loans.
The Central Bank wants to reduce predatory lending and create a fair and transparent financial environment by enacting strict restrictions. These efforts promote responsible lending and protect residents’ finances while the country develops economically.
BoT’s decision comes after Kenya, a nearby country, banned more than 100 digital credit providers that were not licenced. It limited the number of mobile loan apps that could be used to 50.