Finance

April 2015

Briefing

Banking and
financial sector
developments
This months finance briefing will take a look at
notable developments which have taken place
within Tanzanias banking and financial sector, in
particular focusing on foreign exchange issues which
have come under the spotlight following the recent
depreciation of the Tanzanian Shilling.
BoT restricts TSH swaps and forwards
The Bank of Tanzania (BoT) has restricted the use of foreign exchange swaps and
forwards which involve the Tanzanian Shilling (TSH). Before these restrictions
came into force, banks and financial institutions were merely tasked with
obtaining the BoT Governors approval prior to making any TSH swaps and
forwards pursuant to section 9 of the Foreign Exchange Act 1992.
The new restrictions came into force on the same day they were announced
(10 February 2015) due to the current domestic and international economic
developments which have affected the foreign exchange market in Tanzania.
Banks and financial institutions are now required to observe the following:
Maturity levels

Reporting requirements

Setting the maturity of TSH swaps

and forwards:

Reporting to the BoT on a daily basis

in regards to:

at a minimum of 3 months,
for non-residents
at a minimum of 7 days,
for residents

the date
counterparties
rates
duration
purpose

of TSH swaps and forwards.

Politicians call for a ban on USD payments

In the February 2015 economic review report, the BoT reported that the TSH
is depreciating at a monthly rate of 1.8% and an annual rate of 8.8% due to
the strengthening of the United States Dollar (USD). An increasing number of
Tanzanian businesses are abandoning the TSH in favour of the USD in light of
these developments and politicians are pressurising the BoT and the Ministry of
Finance to combat the trend. The pressure seems to have borne fruit.
At a recent press conference, the Deputy Minister for Finance, Mr. Mwigulu
Nchemba, announced that stern measures would be taken against businesses
that are charging customers in USD. However, as the law currently stands, USD
payments are not prohibited.

While section 26 of the Bank of Tanzania Act 2006 provides that the TSH is
the only legal tender in Tanzania, section 5 of the Foreign Exchange Act 1992
provides that businesses are allowed to hold any amount of foreign currency
within Tanzania. Neither Act expressly provides that payments cannot be made
in foreign currencies. What is more, a parliamentary statement issued by the
Ministry of Finance in 2007 proclaimed that the law allows for foreign currency
payments to be requested and made. No other formal statements have been
issued from the Ministry or the BoT to date.
Parliamentarians have consequently called for an update to existing banking
and finance legislation as well as the introduction of a new law on foreign
currency transactions.
Notwithstanding the above, while businesses may price in USD, it is advisable
to allow customers the option of paying in TSH, based on section 26 of the Bank
of Tanzania Act 2006.

Legality of foreign exchange rate fixing

Foreign exchange rates are, first and foremost, determined by the BoT. Section 50
of the Bank of Tanzania Act 2006 states that the BoT shall formulate, determine
and implement the exchange rate policy in Tanzania and section 6 of the Foreign
Exchange Act 1992 empowers the BoT to set foreign exchange rates.

Further information
If you would like further information
on any issue raised in this briefing,
please contact:

Peter Kasanda
Partner, Dar es Salaam
T: +255 767 850 056
E: peter.kasanda@clydeco.com

Teresa Parkes
Legal Director, Dar es Salaam

Aside from the BoT, banks, financial institutions and bureau de changes are
also empowered to set foreign exchange rates as evidenced by section 24 of the
Banking & Financial Institutions Act 2006 and the Foreign Exchange (Bureau De
Change) Regulations 2008.
However, as with foreign currency payments, the law does not explicitly state
that businesses outside of the banking and financial sector are barred from
using their own exchange rates. Moreover, it is important to note that the BoTs
exchange rates are not mandatory; they are merely reflective of the goings-on
in the market as pointed out by the BoTs Director of Economic Research and
Policy, Dr. Joseph Masawe.

T: +255 767 850 052

E: teresa.parkes@clydeco.com

Therefore, if businesses price in USD but allow payment in TSH, they are, for
now, able to set their own exchange rates for this purpose.

Clyde & Co Tanzania

11th Floor, Golden Jubilee Towers
Ohio Street
PO Box 80512
Dar es Salaam, Tanzania

Banking and financial Ombudsman to be created

T: +255 768 983 000/022

F: +255 222 103 004
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of this summary.
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Clyde & Co Tanzania 2015
CC007243 - April 2015

The BoT has established a Complaints Resolution Desk to formalise the

complaints handling process within the banking and financial sector. The
establishment of the Complaints Resolution Desk is the first step towards the
creation of the financial and banking services Ombudsman according to the
Deputy Governor of the BoT, Mr. Lilla Mkila.
Mr. Mkila explained at a recent sector event that the Ombudsman will be
responsible for hearing and determining complaints and that this new measure
will help reduce the number of cases brought before the courts.
Complaints handling systems have been in place in banks and financial
institutions long before the Complaints Resolution Desk and Ombudsman were
proposed, although they have not been regulated by any specific legislation
unlike other activities in the sector (e.g. security features). However, a code of
professional practice was recently adopted by the Tanzania Bankers Association
to, among other things, set a benchmark for complaints handling systems.