Written by the Kopesha team at Softsamic Company · Published 19 September 2026 · Updated 29 September 2026 · 11 min read · No lender pays for these guides · How we write and check them
Two figures to get before you sign anything
The loan officer says "3% a month", or "10% for the month", and waits for you to nod. That rate is only a starting point. Two loans quoted at the same rate can take very different sums of money from you, depending on how the interest (riba) is worked out, how long the loan runs and what fees come with it.
So ask for two figures in shillings, and write them down. First: "How much will reach my hand, in cash or on M-Pesa, on the day the loan is paid out?" Second: "How much will I have paid in total when the last installment (rejesho) is done?" Take the first figure away from the second and you have the cost of the loan in shillings.
Flat interest and reducing-balance interest
A lender can charge the same monthly rate in two ways. Flat interest is worked out once, on the full amount borrowed, and charged every month until the end, however much you have already repaid. Reducing-balance interest is worked out each month on the principal you still owe, so it shrinks as you pay the loan down.
Say you borrow TZS 1,000,000 for six months at 15% a month. Charged flat, the interest is 1,000,000 × 15% × 6 = TZS 900,000. You repay TZS 1,900,000, about TZS 316,667 a month. On a reducing balance with six equal installments, each payment is about TZS 264,237 and the total is about TZS 1,585,421. Nothing else about the two loans differs, yet the flat one takes TZS 314,579 more from you.
| Month | Flat: interest charged | Reducing: interest charged | Reducing: principal still owed after paying |
|---|---|---|---|
| 1 | 150,000 | 150,000 | 885,763 |
| 2 | 150,000 | 132,864 | 754,391 |
| 3 | 150,000 | 113,159 | 603,312 |
| 4 | 150,000 | 90,497 | 429,572 |
| 5 | 150,000 | 64,436 | 229,771 |
| 6 | 150,000 | 34,465 | 0 |
| Total interest | 900,000 | 585,421 |
Look at month six on the flat loan. After five payments you owe only about TZS 166,667 of principal, yet the lender still charges TZS 150,000 of interest, 15% of the whole million. The flat loan above costs the same as a reducing-balance loan at about 22.1% a month, not 15%.
You can run this test on any schedule a lender hands you. If the interest figure is the same on every line, the loan is priced flat. Reading your repayment schedule goes through a sample schedule column by column.
What the law says about flat interest
The Bank of Tanzania's Financial Consumer Protection Regulations, 2019 (GN 884) already said, in regulation 11(4), that a provider "shall not apply straight line method or any other method which has not been sanctioned by the Bank in calculating interest amount on loans". The 2025 amendment (GN 298, published 23 May 2025) replaced that sentence with a plain instruction: a financial service provider "shall apply a reducing balance method to calculate interest amount on loans".
Regulation 2, as replaced by the same amendment, makes the regulations cover providers the Bank has licensed or that it supervises and regulates, except where it prescribes otherwise. That takes in Tier 2 microfinance lenders: the non-deposit-taking lenders, individual money lenders included, that apply to the Bank for their licence under section 17 of the Microfinance Act 2018. The Bank's Banking Supervision Annual Report for 2024 records that it required every licensed microfinance provider to use the reducing balance method for computing interest.
None of this reaches an unlicensed lender or an informal loan between neighbours, so you may still meet flat pricing. If a lender tells you its rate is flat, ask it to put the reducing-balance equivalent and the effective annual rate in writing, and check that the lender is licensed before going further.
Fees taken before the money reaches you
A fee (ada) taken out of the loan at payout raises its cost more than the quoted rate suggests. You receive less, but the installments are worked out on the full amount, so you pay interest on money you never held.
Imagine a shop owner in Kahama borrowing TZS 2,000,000 over 12 months at 4% a month on a reducing balance. In one version there is no fee. In the other, the lender deducts a TZS 100,000 fee (5% of the loan) at payout, so TZS 1,900,000 arrives.
| No fee | TZS 100,000 fee deducted at payout | |
|---|---|---|
| Cash that reaches you | 2,000,000 | 1,900,000 |
| Each monthly installment | 213,104 | 213,104 |
| Total repaid | 2,557,252 | 2,557,252 |
| Total cost (interest plus fee) | 557,252 | 657,252 |
| True rate a month | 4.00% | 4.90% |
| Effective annual rate | 60.1% | 77.4% |
The quoted rate stayed at 4%, but the effective annual rate rose by about 17 percentage points. Money held back as compulsory savings or cash collateral works the same way for as long as the lender keeps it. In the no-fee version above, if TZS 200,000 were held back and returned only after the last installment, the effective annual rate would be about 74.8%.
The Bank's 2019 regulations for Tier 2 lenders (GN 679) deal with held-back cash in regulation 23. A lender that takes cash collateral or compulsory savings must keep the money in a separate bank account, may not lend it out or use it for anything else, and must pay it back once your loan obligation is met. An individual money lender may not take it at all.
The Bank's 2024 fee guidelines allow a Tier 2 lender one management fee, charged once, which must be "reasonable and affordable" and covers application and processing (guideline 13(3)–(4)). The lender may not charge insurance above the insurer's actual premium (guideline 14(1)). Fees a lender cannot charge sets out which other charges are allowed and which are banned.
What does a daily or weekly loan really cost?
Loans repaid in small daily or weekly amounts look cheap because each payment is small. Take two made-up loans for a market trader. One is TZS 50,000, repaid at TZS 2,000 a day for 30 days. The other is TZS 300,000, repaid at TZS 36,000 a week for 10 weeks. Each returns 20% more than was borrowed.
That 20% treats the loan as flat. In fact you start handing money back on day one, so on average you hold far less than the full loan. Worked out on a reducing balance, the two loans are not close.
| Daily loan | Weekly loan | |
|---|---|---|
| Cash received | 50,000 | 300,000 |
| Repayments | 2,000 a day for 30 days | 36,000 a week for 10 weeks |
| Total repaid | 60,000 | 360,000 |
| Cost as a share of the loan | 20% | 20% |
| True rate on a reducing balance | 1.22% a day | 3.46% a week |
| The same rate over 30 days | 43.8% | 15.7% |
Per 30 days, the daily loan costs nearly three times as much as the weekly one, because it squeezes the same 20% into 30 days instead of 70. Kopesha's tool for comparing loan offers will check a weekly loan like this: enter the cash received, the installment, the number of installments and "weekly". It puts the weekly loan above at an effective annual rate of about 486%.
An expensive loan can still be the right one. If the TZS 50,000 buys stock that you sell within the month for more than TZS 10,000 above what you paid, the loan has paid for itself. If it pays a bill, a repair or a funeral, the TZS 2,000 a day comes out of your own earnings over those same 30 days: TZS 60,000 in all, of which TZS 10,000 is the cost of borrowing.
For a loan taken on your phone, what mobile money loans cost shows how to turn an app's fee over a few days into a monthly and a yearly rate.
Nominal and effective rates in your agreement
"3% a month" is a nominal rate. Multiply by 12 and you get 36% a year. That is the usual way to state a nominal annual rate, and regulation 39(2)(b) of GN 679 requires the agreement to show the "nominal or stated annual interest rate". A nominal rate leaves out fees and the fact that you repay in installments, so it understates the cost.
The effective annual rate counts both. It is the one rate that lets you compare a weekly loan with a monthly one, or a loan with a fee against one without. For a Tier 2 lender, regulation 39(2) requires the loan agreement (mkataba wa mkopo) to show, among other things:
| Paragraph | What it must state | What to do with it |
|---|---|---|
| 39(2)(b) | Nominal or stated annual interest rate | Expect the quoted monthly rate × 12, and ask if it is different |
| 39(2)(c) | All other fees charged | Match each fee to what was deducted or will be added |
| 39(2)(d) | Effective annual interest rate that includes all fees charged | Compare this figure between lenders |
| 39(2)(f) | Sum of all payments until the loan is fully paid | Check it equals the installments added up |
| 39(2)(g) | Interest rate computation method | Expect reducing balance from a licensed lender |
The regulations do not give a formula for the effective rate, so a lender's figure may differ a little from a calculator's. If the gap is several percentage points, ask the lender how it worked out its figure.
The consumer protection regulations add a similar duty for every provider they cover. Under regulation 26(1)(d), a provider offering credit must disclose the "total cost of credit", broken down for each installment, including the "annual percentage rate". Questions to ask before you sign covers the rest of the agreement.
If you borrow in Zanzibar: GN 679 and the fee guidelines of 2024 bind only lenders on the Mainland. Section 2 of the Microfinance Act says it "shall apply to Mainland Tanzania", and guideline 4 limits the fee guidelines to lenders "operating in Tanzania Mainland". The consumer protection regulations are made under the Bank of Tanzania Act instead, and their 2019 text named Zanzibar too. In Zanzibar the arithmetic on this page still holds.
Is 3% a month expensive?
We could find no official average interest rate for microfinance lenders in Tanzania, so nobody can honestly tell you what a "normal" rate is. What you can do is turn any monthly rate into an effective annual rate and set it beside other figures.
| Rate quoted a month | Nominal rate a year | Effective a year, reducing balance | Effective a year if charged flat |
|---|---|---|---|
| 2% | 24% | 26.8% | 50.7% |
| 3% | 36% | 42.6% | 81.2% |
| 5% | 60% | 79.6% | 154.4% |
| 10% | 120% | 213.8% | 426.9% |
On TZS 1,000,000 over 12 months, 3% a month on a reducing balance costs TZS 205,545 in interest. Charged flat, it would cost TZS 360,000. Fees push both effective-rate columns higher.
For comparison, the Bank's Monthly Economic Review for March 2026 reports that banks' overall lending rate was 15.11% a year in February 2026, and 15.41% for loans of up to one year. Those figures describe bank lending, so treat them as a reference point, not as a price a small lender has to match. Put the nominal yearly rate from your own agreement beside them, and bear in mind that the effective rate with fees will be higher still.
Paying a Tier 2 loan early
A Tier 2 loan can be cleared early, fully or partly, without a penalty, and paying it all off early ends the interest for the months that were left (GN 679, regulation 42(3) and (4)). Getting out of debt you already have works out what that saves, and fees a lender cannot charge deals with the early-settlement fee some agreements contain.
Checking the figures, and what to do when they do not match
Kopesha's free loan calculator takes the amount, any fees charged at the start, the rate as quoted, flat or reducing balance, and monthly or weekly payments. It shows the installment, the cash you actually receive, the total you repay, the effective annual rate with fees and a full schedule.
The Bank has its own loan calculator. You give it the loan amount, a monthly or annual rate, other charges, the repayment frequency and the duration. It returns a fixed repayment amount, the total interest and an amortization (repayment) schedule. To weigh two lenders against each other, comparing two loan offers works through a full example.
If the agreement's figures do not match your own, ask the lender to explain them in writing before you sign. If you have already signed and think you were charged more than the agreement allows, raise it with the lender's complaints desk first; if its answer does not satisfy you, you can escalate to the Bank through Sema na BoT. Your rights as a borrower lists what to put in a complaint and how many days the lender and the Bank each have to act.
Sources
- Microfinance (Non-Deposit Taking Microfinance Service Providers) Regulations, 2019 — GN No. 679, Bank of Tanzania (regulations 23, 39 and 42)
- Bank of Tanzania (Financial Consumer Protection) Regulations, 2019 — GN No. 884 (regulations 2, 11(4), 26(1)(d))
- Bank of Tanzania (Financial Consumer Protection) (Amendment) Regulations, 2025 — GN No. 298 (new regulations 2 and 11(4))
- Guidelines on Fees and Charges for Microfinance Service Providers, 2024 — Bank of Tanzania (guidelines 4, 13 and 14)
- Microfinance Act, 2018 (Act No. 10 of 2018) — sections 2, 5 and 17
- Banking Supervision Annual Report 2024 — Bank of Tanzania (section 3.2.2)
- Monthly Economic Review, March 2026 — Bank of Tanzania (section 2.3, lending rates for February 2026)
- Bank of Tanzania Loan Calculator
- Sema na BoT — Bank of Tanzania complaints portal
What changed
- 29 September 2026: Rewritten. Corrections: (1) removed the claim that a lender may charge a penalty for paying early; under regulation 42(3)–(4) of GN 679 a Tier 2 borrower may repay early without notice or penalty and owes no interest for the remaining period, and fee guideline 15 allows an early settlement fee only if the agreement clearly states it; (2) the daily loan of TZS 50,000 repaid at TZS 2,000 a day for 30 days was described as costing 20% for thirty days; because repayment starts on day one, its true cost is about 43.8% over 30 days on a reducing balance; (3) removed the unsourced statement that Tanzanian lenders usually quote 10% or 15% a month; (4) removed the statement that flat interest is not unusual; the Financial Consumer Protection Regulations as amended in 2025 (regulation 11(4)) require providers the Bank licenses or supervises to use the reducing balance method; (5) the calculator sentence now describes the loan calculator that exists at /tools/loan-calculator and adds the Bank of Tanzania's own calculator; (6) the reference to Regulation 39 now names its paragraphs (b), (c), (d), (f) and (g). Added: a month-by-month flat vs reducing table and the flat loan's reducing-balance equivalent (about 22.1% a month); a fee-at-payout table; regulation 23 on compulsory savings; a daily vs weekly loan table; a table converting monthly rates to effective annual rates; the Bank's February 2026 bank lending rates; the Mainland-only scope of GN 679 and the 2024 fee guidelines; and the complaint route through Sema na BoT.
- 24 September 2026: Added references to the Bank of Tanzania's regulations and a list of sources.
- 19 September 2026: First published.
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This guide is general information about borrowing in Tanzania. It is not legal or financial advice about your situation or about any particular lender, and the worked examples are examples, not a quote or an offer from anybody.