SECTION 1 Market overview
1.1 Please provide an overview of the cross-border
financing market in your jurisdiction.
The Bank of Tanzania's (BOT) Monthly Economic Review Report
June 2017 is indicative of a vibrant cross-border financing
market. Generally, cross-border financing is biased towards
government projects. That said, cross-border financing for the
private sector is growing. As of May 2017, external debt stock
for both the public and private sectors was $17.9 billion.
Dominant lenders in the market include: World Bank
organisations such as the International Bank for Reconstruction
and Development (IBRD), the International Development
Association (IDA) and International Finance Corporation (IFC);
the African Development Bank (AfDB); the OPEC Fund for
International Development; foreign banks; and other
Common financing structures include debt financing, equity
financing and hybrid financing structures, such as loans and
bonds and mezzanine financing. There is also an increasing
interest in public private partnerships (PPP). Crowd funding
and venture capital for start-ups is also on the increase.
Due to the country's political stability and its geographic
location, cross-border financing plays an important role in the
market. For example, the Tanzania route was selected over other
routes for the East African Crude Oil Pipeline Project running
from Hoima, Uganda, to Tanga, Tanzania. The oil pipeline
project is expected to attract substantial cross-border
financing for both the pipeline project and related projects.
Also, Tanzania's Dar es Salaam port is the port of choice for
several countries in the African hinterland. These include
Rwanda, Burundi, the Democratic Republic of the Congo, Uganda,
Zambia and Malawi. It follows that cross-border financing for
trade in the above countries depends on the efficient handling
of goods at the Dar es Salaam port.
1.2 What have been the key trends or developments in
cross-border financing in your jurisdiction over the past 12
The East African Crude Oil Pipeline Project and related
projects will attract substantial cross-border financing in the
next 12 months.
Tanzania is also in the penultimate stages of commencing
construction of the Standard Gauge Railway. The first phase of
construction, covering approximately 207 kilometres and linking
Dar es Salaam to Morogoro and the second phase, covering 336
kilometres and linking Morogoro to Dodoma, will attract
The recent amendments to legislation regulating the mining
sector have also created potential for cross-border financing
opportunities due to anticipated associated M&A
We have also witnessed an increased interest in loan
transactions between local financial institutions and foreign
institutional lenders during the last 12 months.
Additionally, the recently concluded initial public offering
by Vodacom Tanzania attracted cross-border finance. We
anticipate that subsequent IPOs issued by other
telecommunication companies will attract cross-border
1.3 Have there been interesting changes in the structure of
the banking sector in your jurisdiction?
Yes, there are new entrants such as Guaranty Trust Bank.
There have also been a number of new foreign lenders, including
impact investment funds that have lent money to financial
BOT has recently taken over a local bank that failed to meet
capital adequacy requirements. Also, BOT revoked the licence of
a bank on the grounds of money laundering.
BOT also recently issued new rules requiring banks and
financial institutions to maintain a capital conservation
buffer of 2.5% of risk-weighted assets and off-balance sheet
SECTION 2: Financing structures
2.1 Briefly outline some recent notable transactions
involving your jurisdiction, highlighting any interesting
aspects in their structures and what they might mean for the
We recently advised on a cross-border financing transaction
involving an impact investment fund and a financial institution
in Tanzania. The investment decision and financing structure of
this transaction hinged on the social impact of the borrower's
business, as opposed to the borrower's business performance and
collateral provided by the business. This was the most
important consideration of the lender.
The increased participation of impact investment funds in
Tanzania will require investors and existing companies to
review their social impact.
We have also witnessed increasing cross-border financing
through term loans. These are usually supported by
Transactions in the mining sector are largely structured
through equity and debt financing.
2.2 Have there been any significant developments in the way
cross-border financing transactions are structured or in the
way borrowers and/or lenders are participating in the
Increasingly, lenders prefer to transact directly with local
subsidiaries as principals and not third-party beneficiaries of
loan agreements executed with foreign holding companies. This
may be attributed to averting the risk of failed enforcement of
the loan agreement or decrees and orders arising from dispute
resolution proceedings against local subsidiaries, as well as
BOT regulations that require the registration of foreign
Initially, the recent Vodacom Tanzania IPO had been
ring-fenced for local investors. However, IPO rules were
revised to permit foreign firms and citizens to participate. We
believe subsequent IPOs in the telecommunications sector will
be opened to both local and foreign investors.
SECTION 3: Legislation and policy
3.1 Describe the key legislation and regulatory bodies that
govern cross-border financing in your jurisdiction.
The pre-eminent piece of legislation that regulates
cross-border financing in Tanzania is the Banking and Financial
Institutions Act Cap 342. This Act regulates banking and
financial activities in Tanzania. The Bank of Tanzania Act 2006
regulates BOT and BOT is the regulatory body charged with the
supervision of banks and financial institutions in Tanzania.
Although BOT does not regulate foreign financial institutions,
local borrowers are required to register all foreign loans with
The Anti-Money Laundering Act Cap 423 is also relevant in
regulating cross-border financing in Tanzania. The Act
prohibits money laundering. As such, cross-border financing
transactions must comply with provisions of this Act. The Act
also underpins a regulatory body: the Financial Intelligence
The Capital Markets Authority (CMA) is another important
regulatory authority in cross-border financing in Tanzania. It
is established under the Capital Markets and Securities Act,
Cap 79. The authority regulates all trade in securities in
Other relevant pieces of legislation include the Electronic
and Postal Communications Act, 2010 as amended by the Finance
Act 2017. These Acts require all licensed firms operating
network facilities and services, among others, to offer shares
to the public and list on the stock exchange. The Tanzania
Communications Regulatory Authority (TCRA) is charged with
regulating electronic communication in Tanzania.
Pursuant to the Mining Act 2010, the Minister for Mining is
charged with enacting appropriate regulations for minimum
shareholding and share sales to Tanzanians. The Mining (Minimum
Shareholding and Public Offering) Regulations 2016 were enacted
to implement provisions in the Mining Act. The Ministry
responsible for mining and the Capital Markets Authority
regulate minimum shareholding and public offering.
The Companies Act No 12 of 2002 and its attendant regulatory
body, the Business Registration and Licensing Authority and the
Land Act Cap 113, are relevant in the registration of
3.2 Have there been any recent changes to regulations or
regulators that may impact the cross-border financing market
and what impact do you expect them to have?
The recent amendment (Finance Act 2017) to the Bank of
Tanzania Act, which requires all government and public
authorities to open accounts with BOT and to deposit all their
monies on these accounts, may increase cross-border financing
between foreign lenders and local financial institutions as
they will require funds to boost their lending capacities and
to fill the void left by government deposits. This amendment
was enacted to control the amount of public funds in commercial
The Natural Wealth and Resources Contracts (Review and
Re-negotiation of Unconscionable Terms) Act 2017, the Natural
Wealth and Resources (Permanent Sovereignty) Act 2017 and the
Written Laws (Miscellaneous Amendments) Act 2017 may have an
impact on the number of cross-border financing transactions in
the mining sector. The conditions in the new laws may encourage
new entrants to invest in the market and also lead to some
companies exiting the market. This may increase M&A
activity in the mining sector in Tanzania.
3.3 Are there any rules, legislation or policy frameworks
under discussion that may impact lenders or borrowers involved
in cross-border financing in your jurisdiction?
We are not aware of any rules, legislation or policy
framework under discussion that may impact lenders or borrowers
involved in cross-border financing.
SECTION 4: Market idiosyncrasies
4.1 Please describe any common mistakes or misconceptions
that exist about the financing market in your
Foreign lenders often assume that they require local
licences to lend in Tanzania. This is not true. Licensing under
the Banking and Financial Institutions Act 2006 and the Banking
and Financial Institutions (licensing) Regulations 2008 is only
required where the foreign lenders intend to establish local
presence in Tanzania.
Foreign lenders assume that foreign judgements and
arbitration awards are not enforceable in Tanzania. This is
also not true. Under the Reciprocal Enforcement of Foreign
Judgments Act 2002, the procedure for the enforcement of
foreign judgements is provided. Also, under the Arbitration Act
Cap 15, the High Court will recognise and enforce foreign
arbitral awards without re-examining the merits of the
4.2 Are there frequently asked questions or often
overlooked areas from parties involved in cross-border
financings in your jurisdiction?
We have received various inquiries as to whether licences
are required for investment advisers in securities trade. The
law requires all investment advisers to obtain appropriate
licenses from the Capital Markets Authority.
Foreign lenders also often assume that the debt record
number will be obtained by the borrower/borrower's bank in less
than two weeks. This process in our experience takes about 30
4.3 Are there any classes of assets over which security
cannot be taken or regulations specific to your jurisdiction
governing the taking of security over certain classes of assets
that lenders should be aware of?
Security can be taken over all classes of assets. These
include: shares; bank accounts; receivables; contractual
rights; insurance policies; real property; plant and machinery;
intellectual property; debt securities; future/after acquired
property; and floating charges over all assets.
4.4 What measures should be taken to best prepare for your
It is important that both lenders and local borrowers
appoint good legal counsel to advise on the financing
agreements and local laws. It is also important that lenders
and local borrowers consider all licences and registrations
that may be required in structuring financing transactions.
SECTION 5: Practical considerations
5.1 Briefly explain the downstream, upstream and
cross-stream guarantees available in your jurisdiction, with
reference to any specific restrictions or limitations.
Downstream guarantees are usually granted by the parent
company to assist a subsidiary to obtain financing or guarantee
the performance of an obligation. These guarantees are common
in Tanzania. Parties should ensure that there is consideration
for the guarantee.
Upstream guarantees are usually provided by the subsidiary
to guarantee the obligations of the parent company. These are
less common. Similarly, the parties should ensure that there is
consideration for the guarantee.
Cross-stream guarantees are often provided by related
entities to guarantee enforcement of their respective
obligations. Similarly, the parties should ensure that there is
consideration for the guarantees.
5.2 Are there any specific issues creditors should be
mindful of regarding a bankruptcy and restructuring
It is important that debts are secured as generally in
bankruptcy matters, the secured debts rank above unsecured
5.3 Do foreign debt quotas apply in your jurisdiction and
is offshore financing to domestic entities monitored?
Tanzania does not operate foreign debt quotas. However,
offshore financing to domestic entities is monitored as all
foreign loans have to be registered and debt record numbers
5.4 Describe your jurisdiction's relationship with
non-performing loans (NPLs), including volume of outstanding
NPLs and techniques/challenges in managing them.
The acceptable threshold of NPLs in Tanzania is 5%. All
banks with NPLs above 5% are required to submit NPL
regularisation plans with clear timelines to Bank of
SECTION 6: Outlook
6.1 What are your predictions for the next 12 months for
cross-border financing in your jurisdiction? How do you expect
legal practice to respond?
We expect an increase in the volume of cross-border
financing for financial institution businesses,
telecommunications firms and the mining sector in Tanzania.
We expect that the law firms will advise local and foreign
investors and financial institutions, telecommunications firms
and mining companies on the requirements for issuing IPOs and
listings on the stock exchange.
Saidi Othman Yakubu
Managing counsel, Yakubu and Associates
Dar es Salaam, Tanzania
T: +255 762 089 225
Advocate Saidi Othman Yakubu is a leading authority
on cross-border finance in Tanzania and has published
widely on the subject. He has acted for both lenders
and borrowers on various finance transactions in
various sectors in Tanzania, including: oil and gas,
financial institutions and transport.
He is a fellow of the Chartered Institute of Company
Secretaries and Administrators (ICSA) and a founding
partner of the ICSA Tanzania branch. He is also a
member of the Association of International Petroleum
Negotiators. He is an advocate of the High Court of
Deputy managing counsel, Yakubu and
Dar es Salaam, Tanzania
T: +255 718 160 095
Dr Timothy Kyepa has advised clients on cross-border
financings in East Africa. He has acted for clients in
various financing transactions involving various
sectors such as: energy, transport, oil and gas and