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Banking System Legal Regime in Tanzania

This policy came into effect in 2016 with the main objective of accelerating socio-economic development and transforming Tanzania into an ICT-based middle-income economy and society. The Directive recognises the urgent need for a comprehensive, technologically neutral and dynamic policy, legal and regulatory framework to address issues of data protection, ICT legislation and cybercrime[11]. Prior to the entry into force of the BoT`s Guidelines on the Electronic Payment System, there was no guide on the electronic payment system. For a long time, all transactions were carried out manually. Similarly, even politics has not guided these latter forms of electronic financial transactions. The ICT revolution in the financial sector has brought with it the challenges of data protection, electronic financial crime such as unauthorized transactions and data destruction. Although liability for errors and malfunctions in online banking transactions is not regulated in Tanzania, it has been properly handled in the United States.[54] The customer is obliged to report the error to the bank or financial institution as soon as he discovers the error or error. If the bank or financial institution receives this notification, it must determine within ten working days whether or not an error has been made. If it finds that an error has been made, it is obliged to inform the consumer and correct it within one working day, including, where appropriate, the payment of interest. If the consumer has followed all the procedures, banks may temporarily reaccredit that consumer within ten working interest rates, if any, pending further investigation into this error. However, the review must not exceed forty-five days from the time the bank receives an error message. If the bank determines that no error has been made, it is obliged to inform the consumer within three working days.

However, if the court is satisfied that the bank or financial institution did not pay the consumer the provisional credit as prescribed, let alone satisfy itself that the investigation conducted by the bank was not conducted in good faith, the bank or financial institution pays the consumer three times as much damages in those circumstances. The main laws governing the banking sector in Tanzania are the Bank of Tanzania Act 2006[15] and the Banking and Financial Institutions Act 2006[16]. Under the Bank of Tanzania (BoT) Act 2006,[17] the competent minister may adopt the necessary or desirable rules to facilitate the smooth running of banking operations[18]. The Banks and Financial Institutions Act 2006 was enacted, inter alia, to provide a supervisory mechanism for banks and financial institutions. The Act also empowers the Minister to make necessary or desirable regulations.[19] Tanzania is a multi-religious and multi-ethnic society with a common law legal structure. The Islamic banking system was born in Tanzania in 2008 and is growing very rapidly. However, the introduction of Islamic banking in Tanzania has been accompanied by some legislative challenges that cannot effectively serve the purpose for which financial institutions were established. This is the result of the unique legal framework that works with Islamic banking. In this context, it is necessary to adopt legislation that allows Islamic banks to operate according to Islamic rules and create space for Islamic financial transactions in the financial markets. Posted in PSU Research Review.

Published by Emerald Publishing Limited. This article is licensed under a Creative Commons Attribution (CC BY 4.0) license. Any person may reproduce, distribute, translate and create derivative works of this article (for commercial and non-commercial purposes), subject to the full attribution of the original publication and the authors. The full terms of this license can be found on creativecommons.org/licences/by/4.0/legalcode. Second, the BoT`s 2007 e-Banking Guidelines do not provide for damages for online banking transactions. As a result, banks and financial institutions can unilaterally decide how to pay damages without seeking advice. Some banks, such as NMB, stipulate in their terms and conditions that the bank will not pay any harm to customers in connection with their account or service.[40] In other countries, policies address this issue in order to avoid such discriminatory statements against customers without proper consideration. In its report, the BoT (2011) acknowledges that existing policies and laws governing the banking sector are outdated and therefore largely ineffective in addressing emerging issues arising from ICT development.

These problems include the increase in cases of cybercrime in online banking, such as fraud and unauthorized transactions, as well as the lack of physical infrastructure to support development, such as energy and unreliable telecommunications. Indeed, these problems can be solved by having a comprehensive policy and a comprehensive law, combined with a good institutional framework for their implementation. According to Tanzania`s Law Reform Commission (2005), the country does not have comprehensive policies and laws governing e-banking. Existing policies and laws leave some gaps in some aspects of e-banking as they do not adequately cover IT abuse, e-banking channels such as online banking and mobile banking. Kato, C.I. (2019), «Legal framework challenges to e-banking in Tanzania», PSU Research Review, Vol. 3 No. 2, pp. 101-110. doi.org/10.1108/PRR-06-2018-0016 Ally, A. (2016), «Regulation of mobile money service in tanzania», PhD thesis, Open University of Tanzania. Kenya`s banking sector already reflects a perfect market failure that has led to market distortion.

This is the case from the point of view of competition law. Market failure manifests itself in the banking system, where a few banks are oligopolistic «powers». These powers have proven to be repressive for both ordinary Kenyans and small and medium-sized enterprises. This, among other factors, has been a major obstacle for Kenyans and businesses to access credit, hampering economic growth. Historically, interest rates in some banks have soared as high as 18%, dragging Hard-working Kenyans and small and medium-sized businesses into a financial slump. It has also had a serious impact on Kenya`s economic ambitions, one of which increases the ease of doing business. However, apart from the fact that these guidelines do not have the force of res judicata, they do not cover important issues, such as the scope of the activities to be outsourced and the how. In fact, the liability of the third party is unclear and there are no established penalties for non-compliance. These guidelines appear to have been developed in a hurry, without taking into account all possible scenarios related to the bank. To this end, the law is comprehensive, as it actually encourages each party to play its respective roles.

The bank or financial institution regulates customer complaints in accordance with the established legal framework, which also defines the sanctions associated with it in the event that the bank ignores the legal provisions. The law has imposed binding requirements on the bank or financial institution to act in good faith. In fact, it is an essential general requirement that embodies all the principles of equality and justice, which is also covered in its current form. According to this provision, customers are sufficiently and effectively protected. As in other countries, emerging ICT technologies are promoting e-banking in the country in terms of e-banking delivery channels such as ATMs, Internet banking and point-of-sale e-money transfer. Electronic banking delivery channels have made money transfer more efficient and efficient than traditional non-automated banking, as customers can now easily access their respective accounts anywhere and at any time without having to stand in long files. Customers can access various services without visiting bank buildings and be exposed to long queues as in the days before banking automation. On the other hand, these innovations in the banking sector have highlighted an important challenge in how existing policies, legal and institutional frameworks can address the emerging challenges of e-banking, which are largely unknown in established legislation. Commercial banking was introduced to the country in 1905 when the German Bank of East Africa opened its office in Dar es Salaam. This bank had a concession from the German government to issue its own notes and coins, which helped the bank meet the demand for coins in exchange for its notes. A temporary currency was established in Tabora. In 1911, another German bank, handelsbank für Ostafrika, opened a branch in Tanga.

There was also an official savings bank. In the early 1990s, a report on the study of the monetary and banking systems in Tanzania[1] paved the way for the passage of the Banking and Financial Institutions Act 1991.

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