The legal aspects on the role of insurance in securing banking business against credit risk in Tanzania

Since 1 990s when Tanzania began its financial sector reform strategy, there has been an increase in number of commercial banks in the county. However, at the same time out there are thousands of individual or group of potential borrowers milling around commercial banks desperately leaking for credit and yet cannot get it as are considered by bunks to be too risky. Although there has been a use of various insurance schemes as an alternative method to mitigate credit risk, the problem is still prevailing. To bring the use of insurance in banking business at the maximum level requires strengthened legal framework that support lending and use of insurance to mitigate credit risk associated with lending business. This study, therefore, sought to examine the legal aspects on the role of insurance in securing banks against credit risk in Tanzania. The research question has been how and to what extent the laws in Tanzania facilitate the use of insurance schemes in banks' lending business as security against credit risk? The methodology used, as presented in Chapter One, involved library and field research. Literature material that formed part of library research provided background information as well as secondary data to the study. The field work involved interviews, discussion and documentation. Chapter Two explains historical development of banking and insurance institutions in Tanzania and Chapter Three discusses the regulatory homework of banking and insurance business. Chapter Four examines the law and practices on the role insurance in securing banks' lending business against credit risk in Tanzania. It has been found that insurance has not been used to a maximum level in credit risk mitigation. As hypothesized, the existing insurance law regime does not encourage the use of insurance as a necessary tool against credit risk in banking business. Lack of harmonization of banking business and insurance as a credit risk mitigator has made insurance to be neglected as being a potential vehicle as far as audit advance is concerned. Chapter five concludes the study and makes some recommendations.