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August 2016


Mortgage Financing in Tanzania

It is over a year now since the introduction of the Banking and Financial
Institutions (Mortgage Financing) Regulations, 2015 (the Mortgage Financing
Regulations), and in this months finance briefing we look closely at the
provisions that underpin the mortgage financing sector, together with the
relevant surrounding legislation that support and promote the business of
mortgage financing.
Mortgage financing refers to a business transaction in
which a loan is issued to a borrower for purposes of
acquiring, improving or constructing a residential property
(the Property). The borrower identifies the Property he
wants to acquire, construct or improve and applies for a
loan for that purpose exclusively; the Property is then used
by the borrower to mortgage and secure the loan until
repayment of such loan.

Legal framework

Mortgage finance operations: insider dealing

A licenced housing finance company is allowed to enter
into mortgage financing arrangements created by an
insider who is a director, officer or significant shareholder
and their related parties (in addition to the general public).
It is a legal requirement though, that the mortgages
created by an insider shall not be made under such terms
that are more favourable than would generally be made
available to others.

Licensing requirements

There are specific minimum conditions that would apply

notwithstanding the creation of mortgages by insiders,
which include (to mention a few), the presence of a
mortgage monitoring and identification system, presence
of a well-documented administration policy and approval
of the mortgage by the board of directors of the licensed
housing finance company.

In the past, borrowers could create mortgages for the benefit

of banks and financial institutions only as loans would be
advanced by banks and/or financial institutions. The law
has changed since then and has given room for companies
incorporated as limited by shares and established as housing
finance companies in Tanzania to engage in mortgage
financing operations. These housing finance companies are
required to obtain a licence from the Bank of Tanzania (the
BoT) entitling them to engage in mortgage financing business.

Additionally, there are restrictions on loan amounts that

can be issued to insiders. For a mortgage created by one
insider, the loan amount shall not exceed 10% of the core
capital of the housing finance company; and for mortgages
created by more than one insider that have ceased to be
insiders within two years from the date such persons
ceased to be insiders of the licensed housing finance
company, the loan amount shall not exceed 25% of the
core capital of the licenced housing finance company.

The main legislation which regulates mortgage financing

business in the Tanzanian market is the Mortgage
Financing Regulations; in addition to this are supporting
pieces of legislation i.e. the Bank of Tanzania Act, 2006 and
the Banking and Financial Institutions Act, 2006.

The law prohibits any person from engaging in mortgage

finance operations unless such person has a licence issued
by the Bank of Tanzania (the BoT). Banks and financial
institutions are permitted to engage in mortgage finance
operations automatically from the moment they are issued
with licences to engage in banking business.
A housing finance company applying for a licence must
submit an application letter in a prescribed form attaching
the supporting documents and must pay the relevant
application fee.
Once licenced, a housing finance company must
commence operations within twelve months; provided
that the business premises, security facilities,
communication facilities and processing equipment are all
in place and reviewed by the BoT.

Classification of mortgages
Classification of Mortgages is done by applying a
combination of two criteria i.e. qualitative and quantitative
criteria. The qualitative approach focuses on the
performance of the mortgage, while the quantitative
approach focuses on the outstanding mortgage and the
number of due days that have passed.
Mortgages are classified into five categories namely; current,
especially mentioned, substandard, doubtful and loss.

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

Peter Kasanda

Partner, Dar es Salaam

T: +255 767 850 054

Michaela Marandu

Senior Associate, Dar es Salaam

T: +255 767 850 094

Tenda Msinjili

Associate, Dar es Salaam

T: +255 767 850 098

Clyde & Co Tanzania

11th Floor, Golden Jubilee Towers
Ohio Street, PO Box 80512
Dar es Salaam, Tanzania
T: +255 768 983 000/022
F: +255 222 103 004
Further advice should be taken
before relying on the contents
of this summary.
Clyde & Co LLP accepts no responsibility for
loss occasioned to any person acting or refraining
from acting as a result of material contained in
this summary.
Clyde & Co Tanzania accepts no responsibility
for loss occasioned to any person acting or
refraining from acting as a result of material
contained in this summary.
No part of this summary may be used,
reproduced, stored in a retrieval system or
transmitted in any form or by any means,
electronic, mechanical, photocopying, reading or
otherwise without the prior permission of
Clyde& Co Tanzania.
Clyde & Co Tanzania 2016
CC010998 - July 2016

Current Mortgage

Loss Mortgage

This is a mortgage which does not

have a greater than normal risk and
does not possess characteristics
and weakness of other mortgages as
classified in the law.

This is a mortgage which was initially

classified as doubtful in the last
quarterly review and no significant
improvement has taken place. It is
also classified as:

Especially Mentioned Mortgage

a. A mortgage to a deceased person

This is a mortgage superior to

substandard mortgages but which is
potentially weak and requires closer
supervision by the licenced housing
finance company.

b. A mortgage to a person whose

whereabouts are unknown
c. A mortgage to a person whose
earning power is permanently

Substandard Mortgage

d. A mortgage that is considered

absolutely uncollectable

This is a mortgage which possesses

uncorrected technical defects and
weakness categorised as especially
mentioned mortgage or which the
borrowers ability to service the
mortgage has been impaired.

Doubtful Mortgage
A mortgage is classified as doubtful if:
a. It was classified as substandard in
the last quarterly review without
significant improvement in terms of
full payment
b. It is a past due mortgage secured by
a title which is subject to an adverse
c. It is a mortgage with an extremely
high possibility of loss but for some
reasons and factors, that may work
to the advantage of the mortgage, its
classification as an estimated loss is

A mortgage which is classified as

substandard, doubtful or loss is
regarded as a non-performing loan. A
current mortgage on the other hand is
regarded as a performing loan.
The Mortgage Financing Regulations will
help expand and regulate the business
of mortgage financing in the Tanzanian
market, and provide opportunities for
upcoming housing finance companies
to reduce the concentration of mortgage
finance business in banking and
financial institutions in Tanzania.
Clyde and Co has extensive experience
advising clients on all aspects of
mortgage financing. We welcome the
opportunity to discuss this with you in
more detail.