Tanzania’s Central Bank Reacts to Online Lending Scams with New Regulations

The Bank of Tanzania is taking action against online fraud, distancing itself from Leo Beneath London (LBL), a firm accused of operating a Ponzi scheme. Following the arrest of linked individuals, the BoT clarified its lack of association with LBL and proposed new regulations for microfinance services to combat ongoing fraudulent activities. The regulations will impose stricter operational requirements and promote consumer protection.

In response to a recent online fraud scandal, the Bank of Tanzania (BoT) has distanced itself from the activities of Leo Beneath London (LBL), a company implicated in a Ponzi scheme disguised as a movie promotion agency. Law enforcement has arrested 17 individuals linked to LBL, which reportedly solicited deposits from customers in exchange for access to promotional movie clips. The company claimed partnerships with major film studios, enticing participants with promises of substantial returns on their initial investments ranging from Tsh50,000 ($20) to Tsh540,000 ($207).

Participants were encouraged to recruit others to join the program, suggesting a pyramid scheme structure. Authorities believe hundreds may have been defrauded, although exact figures are still being assessed. Amidst growing concern over fraudulent activities in Tanzania’s microfinance sector, the BoT issued a public notice clarifying that LBL had no authorization to operate under its jurisdiction.

BoT Governor Emmanuel Tutuba reiterated that the bank did not sanction LBL’s activities and has initiated legal action against its officials for their fraudulent practices. Concurrently, the BoT disclosed proposed new regulations for microfinance services aimed at addressing misconduct, with a deadline for public feedback set for June 30.

These forthcoming regulations will replace the 2019 rules and include strict licensing requirements, operational standards, and penalties for violations. Emphasis is placed on the location of data servers within Tanzania and the prohibition of multiple lending platforms by a single provider. Additionally, the rules require language usage to default to Kiswahili, with English being supplementary.

Minimum capital thresholds for microfinance operators have also been established: Tsh500 million ($192,000) for companies with majority foreign ownership and Tsh20 million ($7,700) for those locally owned. In addition, foreign nationals planning to enter the non-deposit-taking microfinance sector will face restrictions on employment numbers and will need BoT approval for their operations.

The BoT will further consider the availability of qualified Tanzanian personnel when granting permissions for additional foreign employees, ensuring knowledge transfer to Tanzanian workers. These measures reflect an effort to tighten regulatory oversight in a sector increasingly riddled with scams.

In summary, the Bank of Tanzania is proactively addressing the rising issue of online fraud and unethical practices in the microfinance sector. Through the arrest of LBL affiliates and the introduction of stringent new regulations, the central bank aims to safeguard consumers and restore trust in financial operations. The measures also seek to ensure compliance and enhance the regulatory landscape for both local and foreign entities operating in Tanzania’s microfinance environment.

Original Source: www.zawya.com