A 2006 self-evaluation report by the Southern African Development Community (SADC) mentions self-assessments conducted between October 2005 and March 2006 on the compliance of each SADC country's systemically important payment system (SIPS) with the Core Principles for Systemically Important Payment Systems (CPSIPS). The Tanzania Interbank Settlement System (TISS), which is Tanzania's SIPS, observes eight of the ten Core Principles (CP) and all four Central Bank responsibilities. The Bank of Tanzania (BoT) has explicit powers for regulating, supervising, and conducting the oversight functions of the National Payment System (NPS), which includes all major payment systems users, owners, providers, and managers. According to the same report Tanzania only partly observes CP I, which deals with the crucial aspect of a well founded legal basis and CP V is not applicable to Tanzania. Tanzania passed a new Bank of Tanzania Act in 2006. A 2005 BoT report titled "Tanzania Payment System - Vision and Strategic Framework" points to Tanzania's clear intention to design a new regulatory framework to international best practice. However, there is no subsequent information publicly available as to the effectiveness of the 2006 Bank of Tanzania Act or the compliance of the new regulatory framework with international standards.

General Overview

A 2006 self-evaluation by the Southern African Development Community (SADC) mentions the 1996 joint World Bank/International Monetary Fund (IMF) grant to all SADC countries to facilitate the start of individual payment and settlement systems' modernization projects in each country. It finds that progress in the implementation of the projects has resulted in the development of "safe and efficient national payment systems" (p. 3) in countries "that previously had basic and inefficient mechanisms to effect payments" (p. 3). The report adds that the conclusion of the grant led to self-assessments conducted between October 2005 and March 2006 of the compliance of each SADC country's systemically important payment system (SIPS) with the Core Principles for Systemically Important Payment Systems (CPSIPS) promulgated by the Committee on Payment and Settlement Systems (CPSS). The results of the self-assessments indicate that Tanzania has implemented a real-time gross settlement (RTGS) system - the Tanzania interbank settlement system (TISS) - as well as enhanced clearing and settlement systems and electronic clearing facilities. The report ends by expressing confidence that "the level of knowledge, understanding and skills gained, relating to the area of payment systems, will enable the countries to further pursue the goals of achieving and maintaining safe and efficient national payment systems" (p. 10). As for Tanzania's compliance with SIPS, the self evaluation summarizes that TISS observes eight of the ten Core Principles (CP), as well as all four Central Bank Responsibilities, partly observes one CP, and CP V is not applicable to it.

The Bank of Tanzania (BoT) website provides detailed information on Tanzania's payment system, the National Payment System (NPS), which includes all major payment systems users, owners, providers, and managers. The stakeholders in the system include the government, banks and financial institutions, financial sector supervisors, the stock exchange, infrastructure providers, and business and consumer representatives. Per the 2005 BoT report titled "Tanzania Payment System -- Vision and Strategic Framework," the key agencies involved in the functioning of the Tanzania payments system are the National Payment System Council (NPSC) and its specialized committees, the BoT, the Directorate of NPS and the Tanzania Bankers Association (TBA). The NPSC is the supreme policy making body of the NPS, and its functions include arbitration of disputes, project budget approval, sanctioning of reports and recommendations, and project implementation. It is chaired by the Governor of the BoT. The Directorate of NPS is entrusted with research and development pertaining to capacity building of the NPS. The TBA sets operational rules for the five clearing houses (Dar es Salaam Electronic Clearing House, or DECH, and four manual clearing houses at Arusha, Mwanza, Mbeya, and Zanzibar), represents commercial banks in the NPS, and safeguards their interests.

According to an undated Committee of Central Bank Governors (CCBG) report titled "Addendum: Southern African Development Community Payment System Project: Country Specific Progress Report for the Period April 2005 to March 2006," (henceforth in this document referred to as the CCBG's "Payment System Project Progress Report for 2005-2006") the 1995 Bank of Tanzania Act, as amended in 2003, governs the NPS. The BoT Act bestows "explicit statutory powers on the Bank of Tanzania (BoT) for the regulating, supervising and conducting oversight functions on the national payment systems." (p. 43). The report also mentions some legislative reform proposals with regard to payment systems

The BoT website informs that the BoT spearheaded the NPS Modernization Project in 1996 with a goal to make the NPS more efficient and consumer oriented by the year 2005. The mission of the project is spelled out on the BoT website: "To provide an efficient customer centered payment system designed to meet the payment needs of the country". Project objectives include the minimization of payment, clearing and settlement risks and the achievement of reliable, secure, convenient, universal, and integrated cost-effective systems. The project also aims to "improve microeconomic management capabilities of Bank of Tanzania by supplying timely and accurate information on stock and flow of funds" and to reduce floats and improve efficiency in fund circulation and transmission. The integration of more modern payment mechanisms while remaining responsive to users is also important, as is the creation of an "efficient and effective legal and institutional framework capable of regulating new payment systems." The CCBG's "Payment System Project Progress Report for 2006-2007" finds that the BoT has taken care to develop payment systems as and when international standards are updated.

Commenting on the outcomes of the NPS project, the IMF's 2003 Financial System Stability Assessment (FSSA) on banking supervision notes that an electronic clearing house was launched in 2002 and an electronic funds transfer system went live in 2003. The RTGS system, TISS, was (then) expected to become operational in 2004. An undated CCBG report titled "Feedback from member countries on the status of developments regarding their respective national payment systems" states that the TISS became operational in 2004. The FSSA found that the "NPS modernization project appears overall to be a consistent initiative to develop gradually the payment systems infrastructure" (p. 27). The CCBG's "Payment System Project Progress Report for 2005-2006" reports that the BoT has "successfully implemented the NPS projects" (p. 41), adding that the DECH, MICR, EFT system, and TISS are "up and running" (p. 42). The report further confirms that the Tanzania Revenue Authority (TRA) has been connected to the TISS system to improve the safety and efficiency of government transactions, and that a move to connect the Ministry of Finance with the TISS is also in the offing. Further, the BoT is also negotiating with the TBA to take-over the operations of the DECH and the country clearing houses. The CCBG's "Payment System Project Progress Report for 2006-2007" adds that the BoT "facilitated development of interfaces for the Tanzania National Net Settlement Service, which is a card switch for Visa domestic transactions...[and] has also been instrumental in the developments of a local card switch run by consortium of banks known as UmojaSwitch" (p. 16).

According to the 2005 BoT report titled "Tanzania Payment System - Vision and Strategic Framework," the predominant payment instrument in the country remains cash, since the vast rural sector of Tanzania is not connected to the mostly urban banking system. The government departments and banks use checks as payment media, which is also the most popular instrument, while the commercial sector prefers bank drafts. Intra-bank transfers utilize mail and telegraphic transfers. Per the 2006 CCBG report titled "Bank of Tanzania," other fund transfer systems used for low value domestic and international transfers include Western Union Money Transfer and MoneyGram Systems offered via the Tanzania Postal Bank (TPB), Twiga Bankcorp Ltd and Exim bank. Local payments also utilize services such as money fax, money orders, postal orders, and GIRO systems. Processing and transfers of instruments, as the 2005 BoT report finds, take anywhere between 5 days to 30 days depending upon originator and destination location, due mainly to "inefficient telecommunication and transportation infrastructure and cumbersome internal bank procedures" (p. 3).

The Principles

I. The system should have a well-founded legal basis under all relevant jurisdictions.

ID

The SADC's 2006 Self-Evaluation report summarizes a self-assessment of TISS, according to which it partly observes Principle I. According to the CCBG's "Payment System Project Progress Report for 2005-2006," the 1995 Bank of Tanzania Act governs the NPS. Amendments to the 1995 BoT Act made in 2003 bestow "explicit statutory powers on the Bank of Tanzania (BoT) for the regulating, supervising and conducting oversight functions on the national payment systems" (p. 43). Per the 2005 BoT report titled "Tanzania Payment System - Vision and Strategic Framework," the NPS modernization project envisages amending existing laws and introducing new laws relating to payment systems in Tanzania. In 2006, a new BoT Act came into force, but there is little information regarding the effectiveness of this legislation. However, the 2005 BoT report indicates that the NPS modernization project aims at designing new laws in line with pertinent U.S. and UK laws to adapt the payment system regulatory framework in Tanzania to modern needs and international best practices.

II. The system's rules and procedures should enable participants to have a clear understanding of the system’s impact on each of the financial risks they incur through participation in it.

EN

The SADC's 2006 Self-Evaluation report summarizes a self-assessment of TISS, according to which it observes Principle II.

III. The system should have clearly defined procedures for the management of credit risks and liquidity risks, which specify the respective responsibilities of the system operator and the participants and which provide appropriate incentives to manage and contain those risks.

EN

The SADC's 2006 Self-Evaluation report summarizes a self-assessment of TISS, according to which it observes Principle III. In an earlier 2005 report titled "Tanzania Payment System - Vision and Strategic Framework," the BoT notes that in establishing risk-control measures for the NPS modernization project international standards will be adopted. These include the Lamfalussy Standards for the Deferred Net Settlement system; the G-10 recommendations of the Allsopp Report on managing foreign exchange settlement risk for the design of LVT-CBT; and the report titled "Risks Management for Electronic Banking and Electronic Money Activities" by the Basel Committee on Banking Supervision for the design of the EBIS. Further, a payment system oversight function will also be delineated.

IV. The system should provide prompt final settlement on the day of value, preferably during the day and at a minimum at the end of the day. (Systems should seek to exceed the minima included in this Core Principle.)

EN

The SADC's 2006 Self-Evaluation report summarizes a self-assessment of TISS, according to which it observes Principle IV. In an earlier 2005 report titled "Tanzania Payment System - Vision and Strategic Framework," the BoT outlined the aims, objectives and implementation strategies of the NPS modernization project. The report noted that, under the project, three clearing and settlement processes have been identified: (1) a paper based transfer system to process high-volume; local paper-based interbank transfers through automated clearing houses (ACH). Settlement in this system aims to be on a multilateral net basis, providing same-day finality for credit instruments, and next day finality for debit instruments; (2) a Bulk Electronic Based Transfer (EBT) system for high-volume low-to-medium value offline and online interbank transfers using MICR, providing bilateral or multilateral settlement; and (3) a Large Value Transfer (LVT) system for time critical large value transfers that are high risk, with two settlement options, both final and irrevocable: LVT for Immediate Settlement Finality (LVT-ISF) for real time, continuous settlement; and LVT for Designated Net Settlement (LVT-DNS) for designated-time settlement during the processing day. In addition to these systems, three complementary clearing systems have been envisaged: (1) Payment Cards Processing System (PCPS); Cross-Border Payment Transfer System (CBTS); Electronic Banking and Internet Based Systems (EBIS). These, according to the report, "will use some processing components of the basic systems to achieve settlement finality" (p. 13).

V. A system in which multilateral netting takes place should, at a minimum, be capable of ensuring the timely completion of daily settlements in the event of an inability to settle by the participant with the largest single settlement obligation. (Systems should seek to exceed the minima included in this Core Principle.)

II

The SADC's 2006 Self-Evaluation report summarizes a self-assessment of TISS, according to which Principle V is not applicable to TISS, since it is an RTGS system.

VI. Assets used for settlement should preferably be a claim on the central bank; where other assets are used, they should carry little or no credit risk and little or no liquidity risk.

EN

The SADC's 2006 Self-Evaluation report summarizes a self-assessment of TISS, according to which it observes Principle VI. The 2003 BoT report notes that the settlement bank for commercial banks is the BoT. Commercial banks maintain credit accounts with the BoT to settle their liabilities. The 2005 BoT report titled "Tanzania Payment System - Vision and Strategic Framework," informs that under the NPS modernization project, the newly introduced systems, especially the LVT-DNS, the PBS and the EBT systems will process payments on the basis of the regularly reviewed collateral that they maintain with the BoT, which is the Settlement agent.

VII. The system should ensure a high degree of security and operational reliability and should have contingency arrangements for timely completion of daily processing.

EN

The SADC's 2006 Self-Evaluation report summarizes a self-assessment of TISS, according to which it observes Principle VII. The 2006 CCBG report titled "Bank of Tanzania" states that "in principle settlement is done only where the participant has sufficient funds" (p. 17), and that transfers from the Bank of Tanzania Electronic Clearing House (BOTECH) to TISS are not settled until all participants have sufficient funds to meet their obligations. The system requires banks with insufficient funds to make arrangements to fulfill their obligation before 3.30 p.m. that day, which might include borrowing from the inter-bank market or from the BoT using collateralized Intraday Loan Facility (ILF) or Overnight lending (Lombard) funding as a last resort. Failure to come up with funds by 3.30 p.m. invites penalties, and failure to meet the day's clearing and settlement obligations leads to suspension of the DECH membership. The BoT, in its 2003 report, mentions that banks are required to maintain collaterals with the BoT in the form of credit accounts as well as short term government securities with maturities of not more than three months. The report also finds that as part of its contingency arrangements, the BoT applies manual processing of transactions.

VIII. The system should provide a means of making payments which is practical for its users and efficient for the economy.

EN

The SADC's 2006 Self-Evaluation report summarizes a self-assessment of TISS, according to which it observes Principle VIII.

IX. The system should have objective and publicly disclosed criteria for participation, which permit fair and open access.

EN

The SADC's 2006 Self-Evaluation report summarizes a self-assessment of TISS, according to which it observes Principle IX.

X. The system's governance arrangements should be effective, accountable and transparent.

EN

The SADC's 2006 Self-Evaluation report summarizes a self-assessment of TISS, according to which it observes Principle X.

A. The central bank should define clearly its payment system objectives and should disclose publicly its role and major policies with respect to systemically important payment systems.

EN

The SADC's 2006 Self-Evaluation report summarizes a self-assessment of TISS, according to which it observes Central Bank Responsibility A. The 2003 IMF FSSA notes that the oversight powers of the BoT is explicit, and that the BoT's oversight powers "extend to all types of systems, including large value and retail payment systems, and private sector operators of any type of payment system" (p. 23). The report also mentions the establishment of an NPS oversight team with the purpose of cementing coordination between various oversight branches/functions of the BoT pertaining to payments, banking supervision, financial markets, and economic policy. It recommends that the BoT "issue a Board-approved policy stance" (p. 23) on its payment system oversight role. The CCBG's "Payment System Project Progress Report for 2006-2007" states that the Directorate of NPS is "in the process of coming up with documents that will guide the procedures for general oversight and onsite oversight" (p. 17). An undated CCBG report titled "Feedback from member countries on the status of developments regarding their respective national payment systems" attests that "the oversight function is fully operational" (p. 7), and that the BoT has statutory authority to perform the oversight of the payment systems.

The 2005 BoT report titled "Tanzania Payment System - Vision and Strategic Framework," enumerates the NPS responsibilities of the BoT. These include managing the NPS and overseeing all its activities and procedures; providing settlement facilities and linkages to banks, clearing house operators, and the CSD; owning and operating large-value transfer systems; providing interbank liquidity to clearing systems; coordinating NPS activities; and participating in interbank clearing and settlement operations. The 2003 BoT report and the 2006 CCBG report titled "Bank of Tanzania" add that the amended Bank of Tanzania Act of 2003 empowers the BoT to issue payment system regulations, as well as regulate, oversee, and participate in the payment system. The CCBG's "Payment System Project Progress Report for 2006-2007" notes that the BoT collects monthly information from payment institutions as part of its oversight function. Also the 5 year Corporate Plan 2006/07 to 2010/11 of the BoT incorporates "the review of the NPS Vision 2005 and the formulation of the new Vision 2010/11" (p. 16), with the continuation of existing objectives and addition of new ones. Further, an assessment of the accomplishments of the NPS Vision and Strategic Framework 2005 was also conducted by the BoT in 2006, which concluded that the objectives of the Vision were largely met.

B. The central bank should ensure that the systems it operates comply with the Core Principles.

EN

The SADC's 2006 Self-Evaluation report summarizes a self-assessment of TISS, according to which it observes Central Bank Responsibility B. The 2003 IMF report observes that the BoT's oversight powers "extend to all types of systems, including large value and retail payment systems, and private sector operators of any type of payment system" (p. 23). The report mentions an NPS oversight team with the purpose of cementing coordination between various oversight branches/functions of the BoT pertaining to payments, banking supervision, financial markets, and economic policy.

The CCBG's "Payment System Project Progress Report for 2005-2006" also mentions that the BoT's National Payment Systems Directorate published a self-assessment in 2005 with regard to the "safety and efficiency trends [in Tanzania's payment system] based on national and international standards such as the Core Principles for Systemically Important Payment System and BIS Recommendations on Securities Settlement Systems" (p. 43). The self-assessment evaluated the legal framework of the systems, their performance against benchmarks, and initiatives for regional harmonization. In addition, as noted by the report, the Directorate also drafted other documents for oversight which "take cognizance of international standards in payment system oversight" (p. 43). The CCBG's "Payment System Project Progress Report for 2006-2007" adds that the BoT's Annual Oversight Report cites the assessment of the large value payment systems in Tanzania, viz., the TISS and the DECH in 2005-2006, which concluded that they "broadly complies with the international benchmarks on payment systems" (p. 17).

C. The central bank should oversee compliance with the Core Principles by systems it does not operate and it should have the ability to carry out this oversight.

EN

The SADC's 2006 Self-Evaluation report summarizes a self-assessment of TISS, according to which it observes Central Bank Responsibility C. The 2003 IMF report observes that the BoT's oversight powers "extend to all types of systems, including large value and retail payment systems, and private sector operators of any type of payment system" (p. 23).

D. The central bank, in promoting payment system safety and efficiency through the Core Principles, should cooperate with other central banks and with any other relevant domestic or foreign authorities.

EN

The SADC's 2006 Self-Evaluation report summarizes a self-assessment of TISS, according to which it observes Central Bank Responsibility D. The BoT website informs that the BoT "participates in various Payment System harmonization forums under SADC, East Africa Community [EAC] and COMESA [the Common Market for Eastern and Southern Africa] auspices" to maintain the integrity and cost-efficiency of payment systems in the region. Further, the BoT formed the "East African NPS Harmonisation Committee" jointly with the other two East African Central Banks (Uganda and Kenya) to promote a healthy and harmonized payment system and foster further economic integration in the region. The Committee, per the website, has been taking considerable initiative in providing practical shape to the vision and mission of the exercise, in terms of strengthening the legal framework, setting and implementing international payment system standards, achieving technological advancements and harmonizing their mutual systems.