Feature Article | Encouraging Fintech Innovation in Tanzania
Financial technology (fintech) has been growing at a rapid pace in Tanzania. Part of the reason for this rise is that Tanzanian regulators are actively encouraging Fintech innovation. Fintech, done well, is a powerful tool for achieving financial inclusion for Tanzania’s large unbanked population. The government is taking steps to accommodate firms operating in the financial sector.
One of the examples of the government efforts is harmonisation of all mobile-money platforms through the National Switch Interoperability Agreement by the Tanzania Communication Regulatory Authority (TCRA). This allows customers from different mobile wallets to transfer money from one mobile wallet to another.
The government has also established the Information and Communications Technologies Commission which is mandated with coordinating and facilitating the implementation of national ICT initiatives. Recently the government entered into an MoU with the Financial Sector Deepening Trust (FSDT) pursuant to which FSDT can provide funding and technical know-how in the financial sector while the government provide supports through the legal and regulatory framework.
The potential for the success of Fintech businesses is being driven by Tanzania’s challenges with financial inclusion. In the last decade, the usage of informal financial services narrowed from 29 percent to 7 percent, while the size of the adult population using formal financial services quadrupled in the same period. The penetration of Mobile Network Operators (MNOs) in the Fintech business has resulted in the growth of active mobile wallets to over 21 million while those actively using mobile financial services now stands at 16.6 million.
Fintech businesses in Tanzania include mobile banking, mobile lending and savings, money transfers and mobile payment systems. Other notable fintech businesses are payment platforms, online payment systems, scanning and tapping card payments, aggregation and international remittance businesses. Mobile Fintech is also now a priority for banks in the country. The cost advantages of creating an app or allowing a customer to use short code allowing them to manage their finances without walking in to a bank are clear, and most banks have developed retail focused mobile platforms and have integrated the systems with MNOs to enable customers to move money from their bank accounts to a mobile wallet. This combined mobile wallet and banking system is proving a very popular combination. However, this combination can only work under a sensible regulatory regime. The Tanzanian government is currently seeking to deliver consistency for the Fintech markets.
Currently, Tanzania has six MNOs who have partnered with financial services to provide mobile wallets, peer to peer payment and digital banking services. Some of MNOs electronic money platforms include Vodacom (M-PESA), Tigo (TIGOPESA), Airtel (Airtel Money), Zantel (EZYPESA), Halotel (HALOPESA) and TTCL (TTCL PESA). Different MNOs also issue a number of financial products that allow customers to save and take micro-loans such as M-PAWA (CBA Bank with Vodacom), Timiza (Airtel with Jumo) and Tigo Nivushe (Tigo with Jumo). With the government’s recent launch of the Government Electronic Payment Gateway, (the GEPG) different government authorities are now accepting different MNOs’ electronic money payments that are integrated with the GEPG.
Apart from MNOs, there are several companies innovating in the Fintech space such as Jumo, which offer financial services through MNOs and Masterpass QR payment, a smart and cashless way to make payments in-store and online using an app which is provided by Mastercard and Ecobank Tanzania (and recently being offered by Tigo in partnership with Mastercard and Selcom). Further, Humaniq, a London-based firm, has an app for the unbanked population, which is available in Tanzania. The app can be used on low-end mobile devices and it is connecting individuals with no access to traditional banking services with opportunities equivalent to banking services.
Regulatory framework of fintech businesses
The national strategy in this area has meant that regulators are receptive towards Fintech innovation. Generally the financial sector in Tanzania is heavily regulated and as such, applications for licensing are rigorous, expensive and time consuming. Regulators will normally assess the availability of funding, credibility, competence and capacity of the proposed investors and their employees. The Bank of Tanzania (BoT) is the regulator of the financial sector (including Fintech businesses). Fintech businesses may (depending on the nature of their activities) also be regulated by the TCRA under the Electronic and Postal Communications Act 2010 (EPOCA).
Having a multiplicity of regulators is usually a recipe for stagnation and slow delivery of services, but in the Tanzanian context, this has not been the case. A good example of pragmatism is the BoT decision to allow electronic money transfer platforms to operate even before a proper legal framework was in place in 2008.
When a Fintech looks to introduce new products, the relevant regulator will assess consumer protection, market stability, prevention of money laundering and fraud. Given this, it is recommended that companies offering Fintech products and services ensure they have consulted and obtained all of the relevant clearance, licences and approvals from the relevant regulators and provide extensive, transparent and up front disclosures.
In our experience, potential investors should plan to meet with the regulators prior to making licence applications to ensure that regulators fully understand how the product will function. In explaining the product’s benefits, the proponent should also highlight the precautions taken to provide consumer protection, ensure market stability, and (for money transfer products) prevent money laundering and fraud.
Fintech business is on the rise in Tanzania and there are no signs of it slowing down. While currently digital financial services are implemented via partnership or within banks and MNOs’ existing infrastructure, there is still a lot of potential for new Fintech products and services to service the large unbanked population.
This article has been extracted from ALN Legal Notes