It covers payment methods and information on, banking systems, foreign exchange controls, and U.S. and correspondent banking.
Methods of Payment
Cash and mobile payment continue to be dominant payment instruments within the country. For U.S exporters wishing to do business with local partners in Tanzania interbank transfers would be a suitable mode of payment. International fund transfers of large value are mainly affected through correspondent banking relationships. The main means of sending payment instruction to correspondent banks abroad is through SWIFT.
For Tanzania, when an exporter has concluded a commercial export contract with a Tanzanian importer and the two parties do not know each other, the irrevocable and confirmed letter of credit (LC) is the most appropriate instrument to mitigate the risks.
The Tanzanian importer will ask the Tanzanian bank to issue a letter of credit for the benefit of the exporter who will have previously named the notifying and confirming bank to be accepted by the exporter.
For Tanzania, the exporter must choose a confirming bank that has in its network of correspondents the Tanzanian bank that is proposed by the importer but also the one that has an acceptable credit rating so that there is minimal risk of default of payment from the confirming bank.
A letter of credit issued in Tanzania is usually confirmed by a large number of banks which are prepared to take the risks of Tanzanian banks and make sure the beneficiary of the LC or exporter obtain his payment.
List of Tanzanian banks issuing letters of credit and which are accepted by the banks of exporters:
- CRDB Bank
- Exim Bank
- Peoples Bank of Zanzibar
Open account method should only be used when the seller trusts the buyer and is happy with the country risk of the buyer. The U.S exporter can reduce risk by obtaining a bank/status to ascertain the financial standing, reliability and integrity of the buyer. If transactions are ongoing, it is wise for the seller to update reports on a regular basis.
In Tanzania there are two credit rating agencies: CreditInfo Tanzania and Dun & Bradstreet. Some of the collection agencies in the country include Ardean Law Chambers, SEPCO Debt Collection & Auctioneering company and Swiss Attorney’s.
For more information about the methods of payment or other trade finance options, please read the Trade Finance Guide available at Trade Finance Guide. To access Tanzania’s ICS section on financing, visit the U.S. Department of State Investment Climate Statement website.
Bank of Tanzania (BoT) is the primary regulator of all banking activities in the county. It is responsible for setting up policies that govern the banking industry as well as control the interest rate to promote liquidity in commercial banks and ensure a prosperous economy in general. The bank continues to adhere to all international standards regarding foreign transactions and trade.
The SWIFT communication network currently used by five banks including BoT has almost eliminated the delays in settlement and the confirmation period. As such it is considered to have reduced the settlement risks associated with cross border transactions.
Foreign Exchange Controls: BoT gradually eased foreign exchange controls after the enactment of the Foreign Exchange Act of 1991, with the establishment of foreign exchange bureaux in April 1992, introduction of foreign exchange auctions in July 1993 and the creation of the Interbank Foreign Exchange Market (IFEM) in 1994.
The country’s trade and exchange systems are now completely free of restrictions on making payments and transfers for current account transactions. The Government has already accepted the obligations of Article VIII of the International Monetary Fund’s Articles of Agreement to boost the country’s attractiveness for foreign investors. The situation is improving with further gradual relaxation of capital account transactions.
U.S. Banks and Local Correspondent Banks
Citibank (Tz) Ltd. is the only U.S. bank currently operating in Tanzania. There are other local and foreign banks who have correspondent banks in the U.S.
CRDB Bank has correspondent arrangements with Citibank, N.A. New York and HSBC Bank USA New York. NMB also has correspondence with Citi Bank U.S.
The National Bank of Commerce (NBC) has correspondent arrangements with JP Morgan Chase Bank, Morgan Trust Guarantee and Citibank.
Foreign banks like Absa Bank have correspondent banks with JP Morgan Chase Bank.
Other foreign banks such as Stanbic and Standard Chartered have similar correspondent arrangements with U.S. banks. The Tanzania Commercial Bank (formerly known as TPB) has a money transfer arrangement with Western Union International of the U.S.