Act No. 5 on Banking and Financial Institutions


(enacted in 2006)

Act No. 5 on Banking and Financial Institutions of 2006 regulates activities of banks and financial institutions, including microfinance companies (MFCs) and other providers of microfinance services, in Tanzania.

This act provides for comprehensive regulation of banks and financial institutions; regulation and supervision of activities of savings and credit co-operative societies and schemes with a view to maintaining the stability, safety and soundness of the financial system aimed at reduction of risk of loss to depositors; repeal of the Banking and Financial Institutions Act, 1991; and other related matters.

Provisions related to microfinance activity include the following:

  • Definition of microcredit enterprise as a small personal and family business that operates in the informal sector with no formal accounting or financial records and whose real assets, if any, can hardly be pledged or reasonably accepted as collateral (Section 3);
  • Definition of microfinance company as a financial institution incorporated as a company limited by shares formed to undertake banking business primarily with households, small holder farmers and micro enterprises in rural or urban areas of Tanzania Mainland and Tanzania Zanzibar (Section 3); and
  • Vesting of licensing, regulation and supervision powers over microfinance-related institutions in the Bank of Tanzania (Section 2(5)).

This act further discusses:

  • Licensing, ownership and structure of banks and financial institutions;
  • Prohibition on operating without a license;
  • Designation of microfinance companies and housing finance companies;
  • Restrictions on ownership of banks and financial institutions;
  • Capital reserves and accounts;
  • Activities and investments;
  • Supervision, coordination and control;
  • Power of the Bank of Tanzania over banks and financial institutions;
  • Protection of deposits and payments out of the Deposit Insurance Fund;
  • Special duties of banks and financial institutions;
  • Liquidation, seizure and reorganization; and
  • Regulations, directives, and circulars.