Lending money for profit

I am a university student in Tanzania pursuing a degree in Statistics and Finance. To help meet my school expenses, I used part of my Higher Education Students’ Loans Board (HESLB) funds to lend money to fellow students at an agreed interest rate. To secure repayment, I would keep collateral such as educational certificates, National ID cards and other personal items. Recently, someone informed me that I may have committed an offence by engaging in money lending without the required licence. I am confused because it is my own money that I was lending and how can it be illegal to lend out my own money?

AB, Dar es Salaam

Your question raises an important issue under Tanzanian law. While a person is generally free to lend his or her own money to another person, the legal position may change where the lending is conducted as a business and for the purpose of making profit. In Tanzania, microfinance activities are regulated by the Microfinance Act (the Act). Under section 16 of the Act, a person is prohibited from conducting microfinance business without obtaining the appropriate licence or authorisation. The purpose of this requirement is to protect borrowers and ensure that persons engaging in lending activities comply with the applicable regulatory standards. The fact that the money belongs to the lender does not, by itself, exempt the activity from the ambit of the regulatory authorities.

Whether your conduct amounts to a regulated microfinance business will depend on the circumstances. Factors that may be considered include whether the lending was carried out repeatedly, whether interest was charged, whether the activity was intended to generate profit and whether it was conducted in a manner resembling a business rather than a one-off or occasional personal loan. Based on the facts you have provided, lending money to fellow students at interest and taking collateral as security may suggest that the activity was being undertaken on a commercial basis.

If it is established that you were conducting a microfinance business without the required licence, this may constitute an offence under the Act and could attract penalties, including fines or imprisonment. It is therefore important to seek legal advice and discontinue any lending activities that may require regulatory approval until you have clarified your position under the law. Your lawyer will be able to advise you further after considering all the relevant circumstances.