GOVERNMENT NOTICE No.

…………… Published on …………

THE BANKING AND FINANCIAL INSTITUTIONS ACT

[CAP 342]

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REGULATIONS
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Made under section 71

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THE BANKING AND FINANCIAL INSTITUTIONS (DEVELOPMENT FINANCE)

REGULATIONS, 2011

ARRANGEMENT OF REGULATIONS

PART I
PRELIMINARY PROVISIONS

1. Citation
2. Application
3. Interpretation

PART II

LICENSING
4. Application for Licence
5. Application Fees
6. Contact Person
7. Legal Opinion
8. Proof of Source of Capital
9. Integrity of Shareholders
10. Grant of Licence
11. Commencement of Business

PART III

ORGANISATION, OWNERSHIP AND MINIMUM CAPITAL

12. Incorporation

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13. Board of Directors
14. Appointment of Managing Director
15. Vetting of Senior Management
16. Declaration by Board Members
17. Risk Management Policies
18. Restrictions on Ownership
19. Minimum Capital
20. Deposit of Paid up Capital
21. Additional Capital Requirements
22. Transfer of Ownership
23. Determination of Available Capital
24. Subordinated Debt
25. Hybrid Instruments or Preferred Stock
26. Capital for Market Risk
27. Trading Book
28. Computation of Capital Adequacy Ratio

PART IV
CREDIT CONCENTRATION AND OTHER EXPEOSURE LIMITS

29. Single Borrower’s Limit

30. Exceptions to Single Borrower’s Limit
31. Prior Approval for Equity Investments
32. Equity Investments in Allied Undertakings
33. Equity Investments in Non Allied Undertakings
34. Total Equity Investments and Credit Accommodations
35. Aggregate Equity Investments
36. Monitoring of Credit Accommodations
37. Transactions with Insiders
38. Conditions for Credit Accommodations to Insiders
39. Credit Limit to Single Insider
40. Aggregate Credit Limit to Insiders
41. Restriction on Unsecured Credit Accommodations
42. Loans to Employees
43. Restrictions on Investments in Fixed Assets

PART V
MANAGEMENT OF RISK ASSETS, CLASSIFICATION AND PROVISIONING

44. Credit Risk Management Policies

45. Review of Credit Policy
46. Quarterly Review and Classification
47. Classification Criteria
48. Classification by Quantitative Criteria
49. Classification by Qualitative Criteria

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50. Current Classification
51. Especially Mentioned Classification
52. Substandard Classification
53. Doubtful Classification
54. Loss Classification
55. Multiple Credit Accommodations
56. Security Consideration
57. Rescheduling and Restructuring
58. Special non-distributable Reserve

PART VI
LIQUIDITY REQUIREMENTS

59. Liquidity Management Policies

60. Adequacy of Liquidity

PART VII
GENERAL PROVISIONS

61. Prohibited Activities

62. Compliance with Other Regulations
63. Physical Security
64. Commercially Unviable Programs or Products

PART VIII
ADMINISTRATIVE SANCTIONS

65. Sanctions

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 PART I

PRELIMINARY PROVISIONS

Citation 1. These Regulations may be cited as the Banking and Financial Institutions
(Development Finance) Regulations, 2011 and shall come into operation on the
date of publication in the Gazette.
Application 2. These Regulations shall apply to any person engaged in development finance
operations.
Interpretation 3. In these Regulations unless the context requires otherwise:
“Act” means the Banking and Financial Institutions Act;
“Bank ” means Bank of Tanzania;
“conflict of interest” means a situation in which someone in a position of trust, has
competing professional, business or personal interest, making it difficult to fulfil his
duties impartially;
“core capital” has the meaning ascribed to it in the Act;
“development finance institution” means an institution which carries on any
activity, whether for profit or otherwise, with or without any Government funding,
with the purpose of promoting development in the industrial, agricultural,
commercial or other economic sector, including the provision of capital or other
credit facility
“director” has the meaning ascribed to it in the Act;
“fit and proper person” means a person with the attributes required of a member
of the board of directors and management of a development finance institution as
per the criteria set out in the Fourth Schedule hereto;
“insider” means directors, officers or significant shareholders of a development
finance institution and their related parties;
"related party"
(a) in relation to or other body corporate means: -
(i) its holding company or its subsidiary;
(ii) a subsidiary of its holding company;
(iii) a holding company of its associates;
(iv) any person who controls the company or body corporate whether alone or with
his related party or with other related parties of it;
(b) in relation to an individual means: -
(i) any member of his family;
(ii) any company or other body corporate controlled directly or indirectly by him
whether alone or with his related parties; and
(iii) any related party of his related parties;
“subsidiary” has the meaning ascribed to it in the Act;
“total capital” has the meaning ascribed to it in the Act;

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 PART II

LICENSING

Application for 4. (1) A person who intends to engage in development finance operations shall, by
Licence a letter in the form prescribed in the First Schedule, apply for a license to the
Bank.
(2) Any person shall, before submitting an application under sub-regulation (1),
apply for a pre-filling meeting with the Bank.
(3) The application under sub-regulation (1) shall be accompanied by a copy of
the documents listed in the Second Schedule.
(4) An applicant shall submit a business plan prepared in accordance with the
general guidelines set out in the Third Schedule.
(5) A person who contravenes the provision of sub-regulation (1) commits an
offence and on conviction shall be liable to the punishment stipulated in the Act.
(6) The provisions of this regulation shall not apply to banks and financial
institutions licensed by the Bank provided that such banks and financial
institutions have a minimum core capital of Tanzania Shillings fifty billion and
submit to the Bank a specific business plan.
Application 5. The application shall be submitted together with a copy of telegraphic transfer or
Fees banker’s cheque of three million Tanzanian Shillings or any other amount as may
be determined by the Bank, payable to the Bank as non-refundable application
fee.
Contact Person 6. An applicant shall designate a principal contact person of the company and
inform the Bank of such designation.
Legal Opinion 7. The Bank may require the applicant to provide legal opinion on any issue related
to the application of the licence as it may determine.
Proof of Source 8. A shareholder of a development finance institution shall provide:-
of Capital (a) a written proof of sources of funds;
(b) a written confirmation that the proposed paid up capital shall be fully paid up
prior to commencement of operations.
Integrity of 9. The Bank shall review the history of the shareholders to determine their
shareholders reputation, experience in banking operations, financial soundness and integrity in
past and present business practices.
Grant of 10. (1) The Bank shall, within ninety days after receipt of a complete application, or
Licence where further information has been required, after receipt of such information,
grant a licence or reject the application.
(2) Where an application is rejected, the Bank shall, in writing, inform the applicant
of the reasons for the rejection.
(3) An applicant whose application has been rejected may re-apply, if the
deficiencies which were the basis for rejection of the application have been
corrected.
Commencemen 11. (1) A development finance institution shall commence operations within twelve
t of business months from the date the licence was granted unless such period is extended in
writing by the Bank.

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 (2) A licensed development finance institution shall not commence business until all
the business premises, security facilities, communication facilities, processing
equipment, accounting and internal control systems are in place and have been
inspected or reviewed by the Bank.

PART III

ORGANIZATION, OWNERSHIP AND MINIMUM CAPITAL

Incorporation 12. A development finance institution shall be incorporated as a company limited by

shares under the laws of Tanzania.
Board of 13. (1) The board of directors of a development finance institution shall be
Directors composed of not less than seven members, majority of whom shall be non
executive members and non government officials.
(2) Members of the board shall be appointed on the basis of merit from amongst
persons who are experienced in development financing, banking, finance,
accountancy or related experience.
(3) The chairperson of the development finance institution shall be a non-
executive member and non government official.
Appointment of 14. A development finance institution shall establish clear criteria to govern the
Managing appointment of the Managing Director and must define clear standards of
Director
qualifications and prior experience that ensure that the Managing Director
commands the commercial skills necessary to run the development finance
institution effectively.
Vetting of 15. (1) The Bank shall make an assessment, in accordance with the criteria set out in
Senior the Fourth Schedule to these Regulations as to whether the proposed member of
Management
the board of directors and senior management of a proposed institution are fit and
proper persons.
(2) The Bank shall evaluate the proposed member of the board of directors and
senior management team with respect to their experience and ability to manage
funds, institute proper credit evaluation, collection procedures, accounting systems,
effective internal control, audit programmes and management information systems.
(3) The Bank may interview the proposed board and senior management team
member and enquire as to past performance, reputation and skills.
(4) The Bank shall make an assessment of proposed board and senior management
team members regarding their formal education, professional qualifications, work
experience, reputation, criminal record and conflict of interest.
(5) The Bank shall make an assessment of proposed board and senior management
team members regarding their formal education, professional qualifications, work
experience, reputation, criminal record and conflict of interest.
(6) The Bank shall further assess whether individuals proposed as board and senior
management team members have the necessary administrative, organizational and
decision-making skills, and ability to demonstrate reliability and sound character.
Declaration by 16. (1) A member of the board of directors of a development finance institution shall

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Board submit to the Bank a declaration that he shall fulfil his obligations towards
Members maintaining a safe, sound and profitable institution.
(2) Without prejudice to sub-regulation (1), a board member shall declare that he
shall comply with the provisions of the Act, Bank of Tanzania Act, any written law,
regulations, policies, circulars, orders, directives and instructions.
Risk 17. The board of directors of a development finance institution shall ensure that
Management policies on risk management are in place and be responsible and accountable for
Policies
the execution of such policies.
Restrictions on 18. (1) A person shall not own or control, directly or indirectly, a beneficial interest
ownership of more than twenty percent of the voting shares of any development finance
institution, except as provided under Section 15 of the Act.
(2) For the purpose of sub-regulation (1) “indirect ownership or control” means
ownership or control through related parties.
Minimum 19. (1) A development finance institution shall commence operations with and
Capital maintain at all times a minimum core capital of not less than Tanzanian Shilling
fifty billion or such higher amount as the Bank may determine.
(2) A development finance institution shall maintain at all times a minimum core
capital and total capital equivalent to thirteen percent and fifteen percent respectively
of its total risk-weighted assets and off balance sheet exposures.

(3)Where a development finance institution owns or controls a bank or financial

institution, directly or indirectly, the capital adequacy requirements shall be satisfied
by each bank or financial institution on a solo basis, and the parent institution shall
comply with the capital adequacy requirements on a solo and consolidated basis.

Deposit of Paid 20. A development finance institution shall, not later than thirty days after grant of
up Capital the licence, deposit paid up capital in Tanzanian Shilling or foreign currency in a
bank or financial institution registered in Tanzania, or invest in Treasury Bills or
other Government securities of not more than 364 days.

Additional 21. The Bank may prescribe additional capital requirements based on the risk profile
Capital of a development finance institution.
Requirements
Transfer of 22. A development finance institution shall not transfer ownership of significant
ownership interest, merge with, acquire or take over any other development finance
institution unless it has obtained prior approval of the Bank.
Determination 23. A development finance institution shall, in determining the amount of available
of available capital for the purposes of complying with the minimum capital required under
capital
Regulation 19, consider the following-
(a) fifty per cent of the year to date profits where accounts are unaudited.

(b) one hundred percent of the year to date profits where accounts have been
audited subject to submission of the signed accounts to the Bank
(c) amount of the investment of the development finance institution in the capital
of another company, firm or its subsidiary to the extent of the reciprocal

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 investment of such company, firm, or its subsidiary in the capital of the bank
or financial institution shall be deducted from the capital of that bank or
financial institution.
Subordinated 24. The aggregate amount of subordinated debt that may be eligible and recognized
debt by the Bank as supplementary capital is limited to fifty percent of core capital,
provided that such subordinated debt shall-
(a) be discounted by a cumulative factor of twenty percent per year during the
last five years to maturity;

(b) be unsecured, uninsured and are not a deposit;

(c) have an original maturity of not less than five years;

(d) be subordinated to claims of all depositors and general creditors of the

development finance institution;

(e) not be redeemable at the option of the holder prior to maturity, except with
the prior approval of the Bank; and

(f) have no requirement for payments of principal or interest except to the extent
that the development finance institution is solvent and shall remain solvent
immediately thereafter.
Hybrid 25. (1) A development finance institution intending to include hybrid instruments or
instruments or
preferred stock preferred stocks not qualifying as tier 1 capital in supplementary capital for the
purposes of satisfying the requirements of Regulation 19 shall apply to the Bank
for approval.
(2) In considering the application under sub-regulation (1), the Bank shall take
into account the requirements for eligible subordinated debt specified in
Regulation 24.
Capital for 26. (1) A development finance institution shall measure and apply capital charges in
market risk respect of market risk.
(2) The minimum capital requirements for foreign exchange risk, interest rate risk
and equity position risk shall be determined by applying the Standardized
Measurement Method specified in the Basel Committee on Banking Supervision or
such other methods as the Bank may approve.
Trading book 27. Financial instruments, including derivative products such as forwards, options or
swaps, shall be allocated to the trading book if they are-
(a) held for short-term resale;
(b) purchased with the intention of benefiting in the short term from actual
and/or expected differences between their buying and selling prices
(arbitrage), or from other price or interest rate variations;
(c) arising from broking or market-making;
(d) held in order to hedge other elements of the trading book.
Computation of 28. (1) The individual market risk capital charges calculated under Regulation 26
capital shall be multiplied by the reciprocal of the minimum capital adequacy ratio of
adequacy ratio
fifteen percent and added to the sum of risk-weighted assets.

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 (2) The capital adequacy ratios for a development finance institution shall be
calculated in relation to the sum mentioned in sub-regulation (1) by using core
capital and total capital to determine whether the development finance institution
satisfies the minimum requirements.

PART IV
CREDIT CONCENTRATION AND OTHER EXPOSURE LIMITS

Single 29. A development finance institution shall not grant to any person and his related
Borrower’s parties, directly or indirectly credit accommodation that exceeds the following
Limit
limits-
Collateral Position Limit (as a percentage of core capital)
Secured by collateral the value of which is at least 125%
of the credit accommodation deemed by it (Fully secured) 25%

Secured by collateral the value of which is less than 125%

of the credit accommodation secured by it (Partly 10%
secured)

Unsecured 5%
Exceptions to 30. (1) A development finance institution may exceed a limit prescribed under
single Regulation 29 provided that the amount in excess of single borrower’s limit is
borrower’s
limit
granted to, or guaranteed by the Government of the United Republic of Tanzania
or is secured against cash, near cash, or is guaranteed unconditionally and
irrevocably by a first class international bank or against securities issued by the
Government of the United Republic of Tanzania or the Bank.
(2) Where a development finance institution grants a credit accommodation in
accordance with sub-regulation (1), it shall, within seven days from the date it
approves the credit accommodation, notify the Bank.
Prior approval 31. A development finance institution shall not engage in equity investment without
for equity
investments obtaining prior approval of the Bank.
Equity 32. The equity investment in any allied undertaking shall not exceed twenty five
investment
In allied percent of the core capital of the development finance institution.
undertaking
Equity 33. (1) Subject to sub-regulation (2), the equity investment in any non allied
investment
in non allied undertaking shall not exceed five percent of the core capital of the development
undertaking finance institution.
(2) The equity investment in any single company other than an allied
undertaking shall not exceed thirty five per cent of the total subscribed share
capital of the investee company.
Total equity 34. The total equity investments and credit accommodations to any single company
investment and
credit shall not exceed twenty five per cent of the core capital of the investing
accommodations development finance institution.
Aggregate Equity 35. The aggregate equity investments in all companies shall not exceed fifty per cent
Investments
of the core capital of the development finance institution.
Monitoring of 36. Every development finance institution shall put in place systems to identify and

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credit monitor credit accommodation to its insiders.
accommodation
Transactions 37. All transactions of a development finance institution with any of its insiders shall
with insiders
be on the terms no more favourable than would be available to others.
Conditions for 38. (1) A development finance institution shall not grant, directly or indirectly, any
credit
accommodation credit accommodation to any of its insiders unless the credit accommodation has
to insiders been unanimously approved by all members of the board of directors in a
meeting where the director or alternate director who stands to benefit from the
credit has inhibited himself from attending.
(2) Where a development finance institution grants a credit accommodation to an
insider in accordance with sub-regulation (1), shall, within seven days from the date
it grants the accommodation, notify the Bank.
Credit limit to 39. The total amount of credit accommodation which a development finance
single insider
institution may grant, directly or indirectly, to any insider shall not exceed ten
percent of the core capital of the development finance institution.
Aggregate credit 40. A development finance institution shall not grant credit accommodations whose
limit to insiders
aggregate amount exceeds twenty five percent of its core capital to its insiders or
a person who has ceased to be an insider within two years from the date when
such a person ceased to be an insider.
Restriction on 41. A development finance institution shall not grant any unsecured credit
unsecured credit
accommodation accommodation to insiders except as set out under Regulation 42(1).
Loans to 42. (1) A development finance institution shall not grant salary advances to any of its
employees
officers and employees, which exceed the annual remuneration of the borrowing
officer or employee.
(2) For purposes of sub regulation (1) the annual remuneration of an officer or
employee shall refer to the basic salary plus cost of living allowances which are
fixed and paid in cash to the officer or employee on a regular and periodic basis
as part of his compensation for services rendered to the development finance
institution, but excluding such benefits, the entitlement to which depends on a
contingency such medical and hospitalisation benefits, or allowances for
attending seminars and boards or committee meetings, or other non-cash
benefits;
(3) The provisions of sub-regulation (2) shall not apply to benefits entitlement of
which depends on a contingency such as medical and hospitalization benefits or
allowances for attending seminars, meeting or other non cash benefits
(4) Loans and advances to officers and employees of development finance
institution intended as incentives shall be managed in accordance with a well-
documented policy regarding administration of such facilities.
(5) Commercial loans and advances to officers and employees of development
finance institution shall be in the regular course of business and on the terms not
more favourable than would be available to other borrowers.
Restrictions on 43. A development finance institution may purchase, acquire or lease fixed assets
investments in
fixed assets where it is necessary for its business, including reasonable provision for
anticipated future expansion and housing of its officers or employees provided
that-
(a) the total investment of the development finance institution in such fixed
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 assets at depreciated net book value, shall not exceed twenty percent of
its core capital;
(b) the limitations under this regulation shall not apply to-
(i) the acquisition of any asset in settlement of a debt to the development
finance institution provided that the asset is sold within three years of
its acquisition date or within a period approved by the Bank; and
(ii) institutions carrying on the business of mortgage financing and
property acquired for leasing activities.

PART V
MANAGEMENT OF RISK ASSETS, CLASSIFICATION AND
PROVISIONING
Credit Risk 44. The board of directors of every development finance institution shall ensure that
management
policies
credit risk management policies are in place and at minimum, such policies shall
include-
(a) a credit policy establishing a framework for making credit and
investment decisions consistent with principles set forth in the Risk
Management Guidelines.
(b) a system for measuring, monitoring, internal risk rating and
provisioning consistent with principles set forth in the Risk
Management Guidelines.
(c) an appraisal mechanism and appraisal-reporting system for all loans.
(d) prescription of a minimum internal rate of return required for projects in
different sectors and sizes.
(e) requirement for defining and monitoring performance indicators that
measure the broader economic benefits of the project.
(f) requirement for periodic supervision of all projects financed by the
institution.
Review of credit 45. The board of directors of a development finance institution shall review at least
policy
annual, the credit policy and submit it to the Bank, not later than thirty days after
its approval by the board.
Quarterly review 46. (1) A development finance institution shall review and classify its outstanding
and classification
loans and other risk assets including contingent accounts or off balance sheet
items at least once every quarter.
(2) A development finance institution shall not upgrade a classified credit
accommodation into a better category without prior approval of the Bank.
(3) Notwithstanding sub-regulation (2) a development finance institution shall
downgrade credit accommodations which have demonstrated weaknesses that
warrant downgrading.
Classification 47. (1) Credit accommodations shall be classified into five categories and assigned
criteria
provision rates as follows-

Classification Provision rate

Current Zero percent
Especially mentioned Five percent
Substandard Ten percent

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 Doubtful Fifty percent
Loss One hundred
percent

(2) Non-performing credit accommodation shall include Substandard, doubtful

and loss categories.
(3) A development finance institution shall, in classifying credit
accommodations, apply qualitative and quantitative criteria.
Classification by 48. Outstanding credit accommodations reviewed by quantitative approach shall be
quantitative
criteria classified as follows:

Number of Days Past Due Classification

181- 365 Substandard
366 – 540 Doubtful
541 and above Loss
Classification by 49. In addition to classifying credit accommodation as either current or past due, a
qualitative
criteria development finance institution shall review qualitatively and classify such credit
accommodations into current, especially mentioned, substandard, doubtful or
loss
Current 50. Current credit accommodations are those which do not have a greater than
classification
normal risk and do not possess the characteristics and weaknesses of classified
credit accommodations as described in these regulations.
Especially 51. Especially mentioned credit accommodations are those that are superior in
mentioned
classification quality to those classified as substandard, but which are potentially weak and
thus require closer management supervision and includes-
(a) credit accommodations with technical defects and collateral exceptions such
as-
(i) un-located collateral file and documents including but not limited to
title papers and deeds, mortgage instruments and promissory notes;
(ii) improper execution of supporting deed of assignment, pledge
agreement, or real mortgage;
(iii) unregistered mortgage instruments;
(iv) collateral not covered by appraisal reports or whose appraisal reports
are unallocated;
(v) credit accommodations where corresponding promissory notes or
credit agreements were signed by a person other than the authorised
officer of the borrowing firm;
(vi) credit accommodations secured by property the title to which bears an
un cancelled lien or encumbrance;
(vii) collateral not insured or with inadequate or expired insurance
coverage;
(viii) credit accommodations to companies not covered by authenticated
board resolutions authorizing the borrowings
(ix) unsecured credit accommodations granted to Directors and officers

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 contrary to the provisions of subsection (2) of section 26 of the Act.
(b) credit accommodations not supported by up-to-date and adequate financial
statements or credit information and they include:
(i) credit accommodations renewed, renegotiated or restructured without
updated financial statements or income tax returns; and
(ii) credit accommodations without credit investigation or analysis reports
or updated credit information independently verified by the lender.
(c) credit accommodations that need the attention of management for special or
corrective action or both, these includes:
(i) credit accommodations wherein efforts to collect are not evident or
are deemed inadequate;
(ii) credit accommodations granted beyond the discretionary limit of the
approving authority;
(iii) drawings or availing against an expired credit line or drawings or
availing without prior approval of the appropriate executive officers;
(iv) credit accommodations to borrowers who failed to comply with
conditionalities of the credit accommodations such as, failure to
operate the account satisfactorily;
(v) credit accommodations to firms with profitable operations but
belonging to a distressed industry;
(vi) combined indebtedness to the development finance institution of a
group of persons, firms or companies that are related, linked or
connected to each other through common ownership, management or
control or through common family or business interest where twenty-
five per cent or more of such combined indebtedness is past due;
(vii) credit accommodations to borrower who frequently fails to respond to
development finance institution calls, visits or demand notices to pay;
and
(viii) credit accommodations the repayment of which may be endangered
by economic or market conditions or other factors which in the future
may adversely affect the borrowers’ ability to meet scheduled
repayments such as declining or fluctuating operation, illiguidity,
increasing leverage trend, or declining market prices over a given
period.
Substandard 52. (1) Credit accommodations classified as substandard are those with weaknesses
classification
that jeopardise their liquidation such as weaknesses inherent in loans especially
mentioned which are more severe or which have remained uncorrected over a
period of one hundred and eighty one days or more.
(2) The weaknesses under sub-regulation (11) may include adverse trend or
developments of financial, managerial, economic, or political nature, or a
significant weakness in collateral.
(3) The basic characteristics of credit accommodations subject to substandard
classification are as follows-
(a) credit accommodations which are non-performing;
(b) credit accommodations which possess the technical defects and weaknesses
of loans especially mentioned and which have remained uncorrected for one

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 hundred and eighty one days or more since the occurrence of deficiency;
(c) credit accommodations, whether current or past due, which have become
unsound due to unfavourable results of operations of the borrower,
significant under-capitalisation of the borrower, or absence of favourable
track record showing borrower’s financial responsibility;
(d) Term loans to borrowers whose cash flows are not sufficient to meet
currently maturing debts and or overdrafts whose funds had been diverted or
proceeds of the financed projects are not used to repay the amount
outstanding; and
(e) credit accommodations to distressed industries repayments of which are
impaired.
Doubtful 53. Credit accommodations having the following basic characteristics shall be
classification
classified as doubtful.
(a) credit accommodations classified as substandard in previous two consecutive
quarterly reviews without any significant improvement since then in terms of
full payment of interest due among other things, except where such loans are
well-secured by legally enforceable collaterals, standby letters of credit and
irrevocable guarantees of top rated international banks, or the government
and that legal action has commenced and realization of collateral within one
year or enforcement of the guarantees within thirty days from demand can be
expected;
(b) unsecured credit accommodations classified as substandard in the last
quarterly review which have been extended, renewed or rolled over without
repayment of all interest and charges due and at least ten per cent of the
principal;
(c) past due loans secured by collaterals such as inventories, receivables,
equipment, and other chattels which have declined in value materially,
without the borrower offering additional collateral and the borrower’s
financial condition does not justify unsecured lending;
(d) past due loans secured by real mortgage title to which property is subject to
an adverse claim rendering settlement of the loan through foreclosure
doubtful or unviable;
(e) credit accommodations whose possibility of loss is extremely high but for
certain important and reasonably specific pending factors that may work to
the advantage and strengthening of the asset, its classification as an estimated
loss is deferred until a more exact status is determined.
Loss 54. Credit accommodation having the following basic characteristics shall be
classification
classified as loss-
(a) credit accommodations classified as doubtful in previous two consecutive
quarterly reviews without any significant improvement since then;
(b) credit accommodations to borrowers whose whereabouts are unknown, or
who are insolvent, whose earning power is permanently impaired and the
guarantors or co-obligors are insolvent, or that their guarantees are not
financially supported; and
(c) credit accommodations considered as absolutely uncollectible.
Multiple credit 55. Where a development finance institution has granted more than one credit

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accommodations accommodation to a borrower or group of related parties, all such credit
accommodations shall be assigned the least favourable classification given to any
one of those credit accommodations.
Security 56. The criteria for classifying credit accommodations shall apply regardless of the
consideration
type of security held.
Rescheduling 57. (1). A development finance institution shall maintain detailed written procedures
and to be followed in rescheduling or restructuring credit accommodations.
restructuring
(2) The rescheduled or restructured non performing credit accommodations shall
not be upgraded into better classification unless new repayment schedule has
been fully complied with for at least four consecutive installments.
(3) Credit accommodations shall not be classified as non-performing where-
(a) they are rescheduled once at the time of project completion;
(b) the project is completed within six months of the original schedule; and
(c) cost overruns do not exceed ten percent.
Special non- 58. (1) Notwithstanding International Financial Reporting Standards every bank or
distributable financial institutions shall classify credit accommodations and other assets and
reserve
establish specific provisions not less than those specified in these Regulations.
(2) Where the provisions computed in accordance with International Financial
Reporting Standards are less than those required by these Regulations, a special
non-distributable reserve shall be created through an appropriation of
distributable reserves to eliminate the shortfall.
PART V
LIQUIDITY REQUIREMENTS
Liquidity 59. (1) A development finance institution shall adopt sound and prudent liquidity
management management and funding policies that are consistent with the principles set out in
policies
the Risk Management Guidelines issued by the Bank.
(2) The policies under sub-regulation (1) shall include-
(a) delegation of responsibility for management of overall liquidity of the
development finance institution to a specifically identifiable group,
which may be known as the Asset and Liability Management
Committee;
(b) establishment and implementation of effective techniques and
procedures to identify, measure, monitor and manage liquidity risk both
in individual currencies and overall;
(c) requirement for analyzing net funding requirements under alternative
scenarios; and
(d) contingency liquidity planning.
(e) requirement for preparation of detailed cash flow forecasts to be carried
out at least monthly for the next three and twelve months period.
(f) requirement for preparation of a gap analysis to be carried out at least
quarterly to compare the tenor of assets and liabilities in different time
bands, from as short as thirty days to as long as five years and a plan
for dealing with negative gaps.
(g) a policy on minimum acceptable debt service ratio.
(3) The liquidity management and funding policies under sub-regulation (1)

15
 shall be reviewed at least annually.
Adequacy of 60. A development finance institution shall maintain sufficient liquid assets to meet
liquidity maturing obligations and liabilities.
PART VI
GENERAL PROVISIONS
Prohibited 61. A development finance institution shall not-
Activities
(a) mobilize or accept demand deposits or operate account similar to a current
account that can be debited by the customer by writing a cheque or requesting a
payment order;
(b) mobilize or accept any savings deposits;
(c) mobilize or accept time or fixed deposit with a maturity of less than twenty
four months; and.
(d) open a branch or subsidiary abroad, if its majority shares are owned by the
Government.
Compliance 62. The provisions of-
with other
regulations
GN. No. 368 of (a) The Banking and Financial Institutions (Publication of Financial Statements)
2008 Regulations, 2008;
GN. No. 375 of (b) The Banking and Financial Institutions (Independent Auditors) Regulations,
2008 2008;
GN. No. 369 of (c) The Banking and Financial Institutions (Foreign Exchange Exposure Limits)
2008 Regulations, 2008;
GN. No, 372 of (d) The Banking and Financial Institutions (Prompt Corrective Action)
2008 Regulations, 2008; and
GN. No. 79 of (e) The Banking and Financial Institutions (Internal Control and Internal Audit)
2005 Regulations, 2005,
shall apply to development finance institutions.
Physical 63. The Bank shall issue directives to development finance institutions on the
Security application of the provisions of the Banking and Financial Institutions (Physical
GN. No. 371 of
2008
Security Measures) Regulations, 2008.
Socially Viable 64. (1) A development finance institution may, for the purpose of implementing its
Programs or policy objectives, and subject to a written agreement with the Government,
Products
undertake socially viable programs or products that do not meet the institution’s
commercial credit assessment criteria.

(2) The agreement entered under sub-regulation (1), shall provide for obligations
of the Government with respect to financing such socially viable programs or
products.

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 PART VI

ADMINISTRATIVE SANCTIONS

Sanctions 65. Without prejudice to the other penalties and actions prescribed by Act, the Bank
may impose one or more of the following sanctions where any of the provisions
herein are contravened-

(a) penalty on the development finance institutions, its directors, officers or

employees responsible for non-compliance in such amounts as may be
determined by the Bank;
(b) prohibition from declaring or paying dividends;
(c) suspension of access to the credit facilities of the Bank;
(d) suspension of lending and investment operations;
(e) suspension of capital expenditure;
(f) suspension of the privilege to issue debt instruments;
(g) suspension from office of the defaulting director, officer or employee;
(h) disqualification from holding any position or office in any licensed or
financial institution in Tanzania; and
(i) revocation of the license;

17
 FIRST SCHEDULE
__________________

[Made under regulation 4(1)]

The Governor
Bank of Tanzania
P.O. Box 2939
Dar es Salaam
TANZANIA

Re: Application for a licence to carry out development finance business

Sir,

We, the undersigned, hereby apply for a License to carry out development finance business in
Tanzania to be known as ____________________________________with principal place of
business at ____________________________________

The proposed development finance institution shall have an authorized share capital of
______________ Tanzanian shillings and paid up capital of _______________ Tanzanian
shillings which shall be contributed by the following subscribers:

Subscribed Shares

Name of Number Amount Amount Percentage of

Subscriber Paid-up Ownership
1. ___________ ____________ ____________ ____________ ____________
2. ___________ ____________ ____________ ____________ ____________
3. ___________ ____________ ____________ ____________ ____________
4. ___________ ____________ ____________ ____________ ____________
5. ___________ ____________ ____________ ____________ ____________
6. ___________ ____________ ____________ ____________ ____________
7. ___________ ____________ ____________ ____________ ____________
8. ___________ ____________ ____________ ____________ ____________
9. ___________ ____________ ____________ ____________ ____________
10 ___________ ____________ ____________ ____________ ____________
11. ___________ ____________ ____________ ____________ ____________
12. ___________ ____________ ____________ ____________ ____________
13. ____________ _____________ _____________ _____________ _____________
14. ____________ _____________ _____________ _____________ _____________
15. ____________ _____________ _____________ _____________ _____________
16. ____________ _____________ _____________ _____________ _____________

18
 17 ____________ _____________ _____________ _____________ _____________
18. ____________ _____________ _____________ _____________ _____________
19. ____________ _____________ _____________ _____________ _____________
20. ____________ _____________ _____________ _____________ _____________
Total
We jointly and severally make a firm commitment to deposit the total amount of paid up capital
for the proposed development finance institution with any bank registered in Tanzania such
deposit to be made not later than thirty days after grant of this application.

In support of this application, we submit herewith the documents listed in the accompanying
checklist. We certify the correctness of all the information indicated in such documents to the
best of our knowledge and belief.

We hereby authorize the Bank of Tanzania and any of its authorized agents or staff members to
make an enquiry or obtain any information from any source for the purpose of determining the
correctness of all the representations made in connection with this application or of assessing its
merits.

To facilitate communication between us, we have authorized ………………. to represent all of

us in regard to this application. It is understood that any notice to him shall constitute sufficient
notice to all of us.

Enclosed is a cheque for three million Tanzanian Shillings being payment of our application fee.

Yours faithfully,

____________________ __________________
____________________ __________________
____________________ __________________
____________________ __________________

19
 SECOND SCHEDULE
________

[Made under regulation 4(3)]

CHECKLIST OF DOCUMENTS

1. Letter of application in the prescribed form.

2. Proposed Memorandum and Articles of Association.

3. Proof of source and availability of funds for investment as capital of the proposed company.

4. List of shareholders and proposed members of board of directors and Chief Executive
Officer.

5. Proof of citizenship of every shareholder and every proposed director and senior
management officer. This includes detailed curriculum vitae, photocopy of the pages of the
passport which contain personal information and two recent passport size photographs.

6. Description of accounting system and information and communication technology in use or

to be used in the operations of the development finance institution and proposed future
investment;

7. Number of employees, job descriptions of senior management positions and an organization

chart;

8. Key policies that shall ensure that the development finance institution operates in a safe and
sound manner.

9. Audited Statement of Financial Position, Statement of Comprehensive Income and Statement

of Cash Flows for the last three years, of every subscriber who owns five per cent or more of
the share capital of the proposed development finance institution;

10. Certified copies of annual returns of every shareholder who owns five per cent or more of the
share capital of the proposed company and every proposed member of the board of directors
and Chief Executive Officer together with accompanying schedules or financial statements
filed during the last three years with relevant Authority.

20
11. Certified copies of tax returns of every shareholder who owns five per cent or more of the
share capital of the proposed company and every proposed member of the board of
directors and Chief Executive Officer together with accompanying schedules or financial
statements filed during the last three years with relevant Tax authorities together with
respective tax clearance certificates.

12. Statements from two persons who are not relatives vouching for the good moral character
and financial responsibility of the subscribers who own five per cent or more of the share
capital of the proposed company and the proposed directors and Chief Executive Officer.

13. Declaration that the funds to be invested have not been obtained criminally or associated
with any criminal activity.

14. Business plan for the first four years of operations including the strategy for growth, branch
expansion plans, dividend payout policy, career development programme for the staff and
budget for the first year.

15. Projected annual Statements of Financial Position, annual Statements of Comprehensive

Income and annual Statements of Cash Flows for the first four years of operation.

16. Brief description of economic benefits to be derived by Tanzania and the community from
the proposed company.

21
 _________

THIRD SCHEDULE
_________
[Made under regulation 4(4)]
__________

General guidelines for preparation of Business plan

1. The business plan should be prepared by the promoters and will be reviewed by the Bank to determine
whether approval should be given to operate a development finance institution. The plan should
identify the institution's markets, its proposed services, management capabilities, growth plan, and
strategies for profitability.

2. The business plan should present data, which accurately reflect the economic condition of the delineated
market and address statutory and regulatory changes, which may affect the operations of the proposed
development finance institution. Proposal should reflect the realities of the market place.

3. A business plan should contain sufficient information to demonstrate that the proposed development
finance institution has reasonable likelihood of success. In this regard a detailed listing of all
assumptions such as used in preparing the business plan should be attached to the submission (e.g. a
margin analysis and cost of funds). Therefore, organizers must ensure that the business plan projections
are well supported and goals and objectives are properly defined on initial submission.

Market Analysis

4. Analyse the market to be served. Describe the market in which you expect to provide services in terms
of economic characteristics for example size, income and industry patterns. Include anticipated
changes in the market, the factors influencing those changes, and the effect they will have on the
proposed institution. To the extent necessary for making business decision, describe differences in the
product market to be served for example, differences in the depository and credit market. Analysis will
be based on use of the most current economic data available. Sources of information used are reviewed
for credibility and are important in reviewing the data.

5. Analyse the competition. List the competitors inside the market to be served, those outside who might
affect the markets served and any potential competition. Give your perception and analysis of the market
strategies and expected results in terms of relative strength, market shares and prices.

6. Explain the strategies you will follow to capture a share of each product market and the results you
expect to achieve. Use a sample format to present a summary of your expectations.

Plans and Objectives

7. Review major planning assumptions used in the analysis and in setting the plans and objectives for a
new institution. Include at least the following market growth, interest rates, cost of funds and
competition.

8. Projections should show the expected asset and liability mix, volume for each type of services, fixed
asset investments and officer and staff remuneration. Projections must be based on the planning
assumptions which must be submitted as part of the application, market analysis, and strategies discussed
above. Discuss the advantages and disadvantages of the proposed asset/liabilities mix, including a net
interest margin analysis, and any actions which will be taken to reduce major risks through appropriate

22
 funds management techniques and systems.

9. Discuss the formula or basis used to arrive at the proposed capital structure and an explanation of why
the promoters believe the proposed amount is sufficient in light of given market factors, strategies, and
expenses. Promoters are expected to raise an amount sufficient to effectively compete in the market are
and adequately support planned operations in addition to all organizational expenses. The Bank may
require a higher amount to maintain capital adequacy to support operations projected through the end of
the institution’s fourth year.

10. Discuss plans for raising capital initially and to finance growth within the first four years. Explain how
the plans will keep the institution in conformity with the Bank’s Capital Adequacy Regulations, 2008
specifically addressing compliance with the risk-based capital guidelines.

Credit Policy and Procedures

11. Credit policies are a set of broad statements establishing the concept and objective parameters for type,
limits for maturities, loan pricing criteria client and collateral standards to be fulfilled by borrowers,
aggregate and individual concentration limits, and loan authority and procedures for collection and
charge-offs.

12 Credit manual must be prepared comprising of detailed guidelines for implementing the stated policies.
The manual generally will address types of business desired, proper borrower financial information;
credit files maintenance; enforcement of repayment schedules; and periodic review and other reports to
be generated and distributed.

13. Credit policies and manuals need to cover all the steps of credit production and administration which
include initiation, investigation and analysis, procedures for approval, renewals and extensions,
documentation, perfection of collateral, funds disbursement and recovery.

14 The structure should in principle reflect the nature and scope of the intended activities of the institution
and the mechanism by which the management envisages to govern the institution and to monitor as to
what extent the objectives of the institution are achieved.

17. The structure should show the relationships between the board and management. It should also show the
composition of various departments of the institution. The structure should also indicate the number of
staff envisaged for each unit. Support units such as internal audit, legal services and others should be
indicated.

18. The promoters should be able to show the names of specific persons that are envisaged to take certain
key positions in the institution. If the actual persons cannot yet be identified, promoters should indicate
the requirement clearly in terms of training, experience and personal characteristics.

19. Promoters are required to disclose how the proposed development finance institution will develop
the professional and technical skills of their staff and Tanzanians will be employed, trained and occupy
positions of senior or managerial ranks in the institution. All future plans should be indicated.

Financial Projections

20. Promoters must prepare projected Statements of Financial Position, Statements of Comprehensive
Income and Statements of Cash Flows. They must submit statements that reflect their assets, liabilities,
and capital projections for the number of years projected to reach profitability; however, a minimum of
four years must be displayed.

21. At a minimum, the information in the following forms must be provided. Additional data should be
included to reflect important element of your planned asset and liability mix for example, the loan and
deposit schedules might be expanded. Average balances, rather than year-end estimates, should be used.

23
Average balances may be computed by projecting monthly or quarterly account balances and averaging
(annualizing) for the appropriate number of periods used.

24
 PROJECTED STATEMENTS OF FINANCIAL POSITION
[In’000 Tanzanian Shillings]

PARTICULARS Year Year Year Year

1 2 3 4

Assets
Cash
Balances with Bank of Tanzania
Balances with other banks
- in Tanzania
- abroad
- investment in debt securities
- Treasury bills
- Other Securities (use separate schedule]
Loans, Advances and Overdrafts (Net]
- loans and Advances
- overdrafts
- allowance for losses (as a deduction]
Premises, Furniture and Equipment
- use separate schedule]
Other Assets (Use separate schedule]

TOTAL ASSETS

Liabilities
Time Deposits
Deposits from other banks
- in Tanzania
- abroad
- other deposits (use separate schedule]

Total deposits
Other liabilities (use separate schedule]
Capital
- paid-up capital
- Ordinary
- preference

Reserves
- share premium (discount]
- retained earnings
- capital reserves
- others (specify]
Total Equity

TOTAL LIABILITES AND CAPITAL

Off-balance sheet commitments

25
 PROJECTED STATEMENTS OF COMPREHENSIVE INCOME
[In’000 Tanzanian Shillings]

PARTICULARS Year Year Year Year

1 2 3 4

Total Interest Income

Interest Expenses
- deposits (use separate schedule]
- borrowings
- Others (specify]

Total Interest Expenses

NET INTEREST INCOME

Provision for loan losses

Bad debt written off
Non-Interest Income
- foreign exchange gain/losses
- commission and fees (use separate schedule]
- others (use separate schedule]

Total Non- Interest Income

Non-Interest Expenses
- officers’ salaries and benefits
- employees’ salary and benefits
- depreciation expenses
- maintenance costs
- others (use separate schedule]

Total Non-Interest Expenses

Operating Income (Losses]
Extra Ordinary Income/Losses (specify]
Net Income/Loss before Income Tax
Income taxes
Net Income/Loss after tax

26
 PROJECTED STATEMENTS OF CASH FLOWS
[In’000 Tanzanian Shillings]

PRACTICE Year Year Year Year

1 2 3 4
Part 1
Cash flow from operating activities
Net Income (Loss]
Adjustments to reconcile income
- provisions
- net change in loans and advances
- gains/Loss on sale of assets
- net change in deposits
- net change in short-term negotiable securities
- net change in other liabilities
- net change in other assets
- others (specify]

Net cash provided (used) by operating activities

Part II
Cash flow from investing activities
- dividend received
- purchases of fixed assets
- purchases of investment securities
- proceeds from sales of investment securities
- others (specify)
Net cash provided (used) by investing activities

Part III
Cash flow from financing activities
- Repayment of long-term debt
- Proceeds from issuance of long-term debt
- Proceeded from issuance of share capital
- Proceeds from sale of fixed assets
- Payment of cash dividends
- Net change in other borrowings
- Others (specify]

Net Cash provided (used) by financing activities

Part IV
Cash and Cash Equivalents
Net decrease/increase in cash and cash equivalents
- Cash and Cash equivalents at the beginning of
the year
- Cash and Cash equivalents, current year-to-date

27
 FOURTH SCHEDULE
__________
[Made under regulation 15(1)]
__________

CRITERIA FOR DETERMINING THE CHARACTER AND EXPERIENCE REQUIRED FOR

A MEMBER OF THE BOARD OF DIRECTORS AND SENIOR MANAGEMENT OF
DEVELOPMENT FINANCE INSTITUTION

1. In order to determine, for the purpose of these Regulations, the character and
moral suitability of persons proposed to be members of the Board or senior management, the
Bank shall have regard to the following qualities, in so far as they are reasonably determinable,
of the person concerned-
(b) adequate education background;
(c) general character;
(d) professional skills, competence and soundness of judgment for the fulfilment of
the responsibilities of the office in question; and
(e) the diligence with which the person concerned is likely to fulfil those
responsibilities.
2. For the purpose of and without prejudice to the generality of the provisions of
paragraph (1), the Bank may have regard to the previous conduct and activities of the person
concerned in the business or financial matters and, in particular to evidence that such person-
(a) has committed any act of bankruptcy;
(b) was a director or in a senior management position of a bank or financial
institution that has been liquidated or is under liquidation or statutory
management;
(c) has committed or been convicted of the offence of fraud or any other offence of
which dishonesty is an element;
(d) has contravened the provision of any law designated for the protection of
members of the public against financial loss due to the dishonesty or
incompetence of, or malpractices by, persons engaged in the provision of
banking, insurance, investment or other financial services.
3. Any other criteria, which the Bank may prescribe, from time to time.

4. The following documents shall be submitted to the Bank with respect to each
proposed director and senior management team, together with other documents the Bank may
require-
(a) detailed curriculum vitae;
(b) certified copies of academic and professional certificates;
(c) photocopy of the pages of the passport which contain personal information
including photograph, nationality, date and place of birth and issuer of the
passport;
(d) two certified passport size photographs; and
(e) references from two persons who are not relatives, vouching for good moral
character, integrity and performance.

Dar Es Salaam, BENNO. J. NDULU

--- January, 2012 Governor

28