FINANCIAL LAW UPDATE: What is required to set up a commercial bank in Tanzania

• What is the general ownership and shareholding structure requirement?
• Is there any foreign ownership restriction?
• What are the financial and capital requirements for establishment of a Bank?
• Governance Structure Requirements.
• What is the typical application process and duration?

1.0 Introduction

The Tanzanian banking sector has undergone a significant transformation, driven by digital innovation and regulatory reforms aimed at increasing financial inclusivity. The financial inclusion rate has risen dramatically, from 16% of adults in 2009 to 76% in 2023/2024. This growth is largely attributed to the widespread adoption of mobile money services, which have become a primary means of financial transactions, especially in rural areas, where traditional bank branches are less common.

With a population of over 61 million people, Tanzania is one of the most populous countries in Africa. The most striking demographic feature is its youth dominance, with over half of the population being under 18 and a significant percentage of the population under 35. This youthful population presents a huge, untapped market for banking and financial institutions. As this large segment of the population enters the workforce and begins to earn income, their demand for financial services and particularly commercial banks, also grows exponentially.

Breakthrough Attorneys has prepared this brief article analyzing what it takes to establish a commercial bank in Tanzania.

2.0 What is the general ownership and shareholding structure requirement?

Ownership of banks and financial institutions in Tanzania is carefully regulated to ensure stability, accountability, and sound governance. As a general rule, no single person may directly or indirectly hold more than 20% of the voting shares in a bank. Furthermore, any transfer of shares that results in a person acquiring 5% or more must receive prior approval from the Bank of Tanzania, which evaluates the fitness, propriety, and financial capacity of the transferee.

In exceptional circumstances, the Bank of Tanzania may grant waivers allowing higher shareholding limits, but such approvals are rare and carefully considered.

3.0 Is there any foreign ownership restriction?

Tanzania does not impose a blanket prohibition on foreign ownership of commercial banks. Individual non-citizens can hold shares in a bank subject to the general restrictions on shareholding. Foreign banks, financial institutions, or their holding companies are permitted to invest in or establish banks in Tanzania, provided the regulator (Bank of Tanzania) is satisfied that the foreign investor is in good standing, is subject to effective and consolidated supervision in its home country, and that its home regulator has approved the investment.

4.0 What are the financial and capital requirements for establishment?

Tanzania places great emphasis on ensuring that commercial banks are adequately funded before they commence operations as well as the ongoing capital adequacy requirements.

At the licensing stage, the law requires an applicant to demonstrate a minimum paid-up core capital of Tanzania Shillings Fifteen Billion. The promoters must demonstrate evidence showing that the new bank has sufficient financial resources from the outset.

Further, once licensed, a commercial bank is required to maintain robust capital buffers in line with the Capital Adequacy requirements to ensure its ongoing financial stability. Currently, this includes a Tier 1 Capital Ratio, which measures the bank’s core capital against its risk-weighted assets, with a minimum requirement of 10%, and a Total Capital Ratio of at least 12%.

5.0 Governance Structure Requirements

The governing laws particularly the Banking and Financial Institutions (Corporate Governance) Regulations, 2021 provide for how a commercial bank should be governed. At the heart of this framework is the Board of Directors, which holds ultimate responsibility for steering the bank, overseeing management, and ensuring accountability to shareholders and regulators. A key principle of this governance structure is the clear separation of roles: shareholders, directors, and management each have distinct responsibilities. For example, any shareholder owning 5% or more of the bank’s shares cannot serve in management, and a shareholder with 10% or more cannot be appointed as the Chairperson or Deputy Chairperson of the board.

The board itself must be composed of at least five (5) members, including a minimum of two Tanzanian citizens, and at least two-thirds must be non-executive directors. These directors should possess relevant experience in banking, finance, accounting, auditing, law, or economics.

Directors are appointed for a term of not more than ten (10) years consecutively and are prohibited from serving simultaneously on the boards of multiple banks or financial institutions in Tanzania without explicit approval from the Bank of Tanzania.

6.0 What is the typical application process and duration?

Establishing a commercial bank in Tanzania involves a structured application process overseen by the Bank of Tanzania. Upon submission of a complete application, the Bank of Tanzania is required to review and make a decision within three months (90 days), however in practice this is often extended due to the volume of required documents, scrutiny and review.

Typically, the application includes a non-refundable processing fee, key corporate documents, risk management policies, proof of paid-up share capital, detailed information on proposed directors and senior management including their qualifications and references, financial projections outlining anticipated balance sheets and income statements, and a declaration of the lawful source of funds used to acquire shares, among other requirements. Collectively, these elements allow the Bank to assess whether the applicant demonstrates sufficient financial capacity, competent governance, and transparency before granting a banking licence.

7.0 Conclusion

Establishing a commercial bank in Tanzania is a rigorous but structured process designed to ensure that only financially sound, well-governed, and transparent institutions operate within the country. From meeting minimum capital requirements and demonstrating competent governance to submitting a comprehensive application, the regulatory framework emphasizes stability, accountability, and depositor protection.

Engaging a range of experts such as legal advisors, financial analysts, and governance specialists during the preparation of policies, corporate structure, and application materials is critical to navigating the process efficiently and ensuring compliance with regulatory expectations. Ultimately, adherence to these standards, combined with expert guidance, not only facilitates regulatory approval but also lays a strong foundation for a sustainable and successful bank.

 

Important Notice:

This publication has been prepared for general guidance on matters of interest only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, Breakthrough Attorneys, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.