The Bank of Tanzania is formulating a mechanism to regulate non-banking microfinance institutions, Bank Governor Prof Benno Ndulu has said.

The new regulations are aimed at checking on the mushrooming of such institutions that exploit investors, particularly the ignorant lot.

The move by BoT comes in the wake of growing public concern over a number of local microfinance companies offering “easy loans” at excessively high rates.

Analysts say when poor people have access to financial services, they earn more, build their assets and cushion themselves against external shocks, but the mushrooming of most of the MFIs in Tanzania might have been for the benefit of the institutions themselves, leaving the poor even poorer.

Poor households are supposed to use such financing to move away from everyday survival to planning their future better by investing more in nutrition, health and education, but the trend for most poor families show that they need to work a lot to repay the loans.

Prof Ndulu said the central bank currently does not regulate the bulk of microfinance institutions that are not part of the licensed commercial bank setup in the country. “We hope to introduce a mechanism to regulate these enterprises from next year,” he said.

The laws governing microfinance institutions have been recently replaced with the new Bank of Tanzania Act 2006, Banking and Financial Institutions Act 2006 and Co-operative Societies Act 2003.

The 2003 Financial Laws (Miscellaneous Amendment) Act, enacted by parliament in February groups microfinance institutions by incorporating amendments to the Bank of Tanzania Act of 1995, the Banking and Financial Institutions Act of 1991 and Co-operatives Societies Act 1991.

Although experts say no single intervention can wipe out poverty, they agree that access to financial services forms a fundamental basis on which many of the other essential interventions depend.

But some of the money lenders prey on junior civil servants and small-scale traders who have difficulty accessing loans from formal banks, charging them high interest rates and other hidden charges.

“Some of them charge up to 200 per cent of the principal amount, and this may not be known until one signs a contract,” a victim of the exploitative lenders said.

Recently, some MPs complained in the parliament that microfinance institutions are fleecing civil servants.

Godfrey Zambi, CCM Member of Parliament for Mbozi East, urged the government to look into the matter seriously as the civil servants have been taken for a ride by microfinance institutions whose rates surpass those of the commercial banks.