INTRODUCTION
On 08th March 2024, the Minister for State, Prime Minister’s Office, Labour, Youth, Employment and Persons with Disability issued the Social Security (Use of Members Benefit Entitlements as Collateral for Home Mortgage) Regulations through Government Notice No. 141. The regulations are made under Section 38 of The Social Security Act, Cap. 135 that empowers the Minister to issue regulations on the use of social security benefits entitlements for collateral for home mortgage for a member who has not attained the age of retirement.
Therefore, this update highlights the key aspects of regulations with the view of enlightening important regulatory and compliance requirements as well as provide necessary general legal information to our esteemed clients and the general public.
KEY TERMS
The following are the key terms which have been defined in the Regulations.
Member has been defined as an employee or worker registered by a scheme and includes a person entitled to or receiving a benefit under a scheme.
An Eligible Member has been defined as a member who has made at least one hundred and eighty months of contributions of which twelve-monthly contributions are made prior to the date of issuance of a collateral.
Home Mortgage has been defined as a loan granted to an eligible member for the purposes of acquiring, constructing or improving a residential house which have been secured by the said house as the first collateral.
Institution means banks and financial institutions registered and licensed under the Banking and Financial Institutions Act.
ASSIGNMENT OF BENEFITS AS COLLATERAL
According to Regulation 3(1) a Member may assign a proportion of his Social security benefit entitlements from the Social Security Fund to be used as a collateral for home mortgage granted or to be granted by the Financial Institution, to enable the Member:
- to construct a residential house on immovable property in respect of which he obtained ownership.
- to purchase a residential house
- to improve, alter or carry out repairs to his house.
However, Regulation 3(2) forbids the Social Security Fund from issuing more than one Collateral at a time in respect of an Eligible Member.
A member who wishes to use his Benefit as Collateral is required to Make a formal application to the Social Security Fund (Regulation 3(3)) whereby the Fund shall review the Member’s application for eligibility and notify the decision to the Member accordingly (Regulation 3(4)).
PROPORTION OF ASSIGNABLE BENEFITS
Regulation 4(1) requires that the portion available to a Member as collateral for the home mortgage shall be an amount not exceeding 50% of the benefit entitlement to an Eligible Member at the time of the application; or the purchase price of the property which shall not exceed the market value of the property, whichever is less. Essentially, the amount available for collateral shall not exceed 50% of the value of Member Benefit.
CONDITIONS OF THE COLLATERAL TO MEMBERS
The Regulations requires any Member who wishes to access the collateral under the Social Security Fund must meet the following conditions:
- must be a Tanzanian citizen.
- must be an eligible member.
- and the validity of the collateral shall not go beyond the member’s compulsory retirement.
CONDITIONS FOR COLLATERAL TO INSTITUTIONS
According to Regulation 6 an Institution that requires the Social Security Fund to furnish the collateral for member’s loan must meet the following conditions:
- obtain approval from the Division responsible for social security within the Ministry responsible for social security matters,
- must have an adequate operational and internal control system for the purposes of structuring and operating a loan,
- must keep and update an accurate record of the transactions from and to a member’s loan account and
- must generate reports as may be required by the Social Security Fund.
APPLICATION FOR APPROVAL
It is the requirement of the Regulations that Any Financial Institution intending to provide a loan under these Social Security Scheme must apply in writing for approval from the Division responsible for social security within the Ministry responsible for social security matters. Moreover,
Regulation 7(2) provides that an application for approval must be accompanied by the relevant documents and information as may be required as prescribed by the Regulations including relevant business license for undertaking such activity.
In addition, the Regulations require the Social Security Fund to consider the Application within 30 days from the date of receipt of an application for approval and issue a written approval to the applicant. Incase the Application is rejected it must equally notify the applicant in writing stating the reasons for such refusal.
REQUIREMENTS FOR FURNISHING MORTGAGES
Regulation 8 (1) provides that the Social Security Fund shall enter into an agreement with the Financial Institution to prescribe the manner in which the mortgage shall be provided. Moreso, the Regulations prohibit any Financial Institution from granting a mortgage to a Member unless the provisions of these Regulations have been complied with.
AMOUNT OF COLLATERAL
According to Regulation 9, the amount to be accessed for the home mortgage collateral under these Regulations shall not exceed 50% of the Member’s benefit entitlements at the time of application.
COLLATERAL FOR MORTGAGE
It is the requirement of Regulation 10 that Social Security Fund shall not furnish a collateral for home mortgage unless such mortgage is granted pursuant to the following conditions:
- the house subject to the mortgage is made the first collateral in the mortgage,
- the member has consented to the Fund for his proportion of entitled benefits to be assigned as a collateral for home mortgage,
- Also, prior to the approval of the amount of a collateral, a Financial institution must satisfy the Social Security Fund that adequate insurance arrangements have been made in respect of the loan and the property for which the loan is advanced.
VALIDITY OF COLLATERAL
A collateral issued shall remain valid until:
a) cessation of membership of a Member from the Social Security Fund pursuant with respective law governing the respective Social Security Fund,
b) a Member has made repayment of the mortgage in full subject to confirmation from the Financial Institution,
c) a Member and institution have engaged into an arrangement that contravenes with the provisions of these Regulations.
EXECUTION OF COLLATERAL (DEFAULT IN REPAYMENT)
In the event of default in the repayment the Regulations provide that a collateral issued under these Regulations shall be enforced/Recovered when a Member has defaulted and the Financial Institution that provided the Loan has provided adequate evidence that all recovery means, have been fully and reasonably exhausted.
It is imperative to note that, the Regulations exonerates the Social Security Fund from liability to pay the amount in execution of a collateral above the guaranteed amount.
DISPUTE RESOLUTION
In case of any dispute between the Member and the Financial Institution that granted the Loan, the Fund shall act as a Mediator. Likewise, in case the dispute arises between the Fund and Financial Institution regarding arrangements under these Regulations, the Division responsible for social security within the Ministry responsible for social security matters shall act as Mediator (Regulation 13).
REPORTING REQUIREMENTS
Regulations 14 requires the Social Security Fund to submit quarterly reports the Division responsible for social security within the Ministry responsible for social security matters indicating the number and amount of collaterals issued as well as details of loans repaid, and collateral ceased and executed.
TRANSFER TO ANOTHER SCHEME
The Regulations guarantees the that the transfer by a Member from one Social Security Scheme (from Public Sector Scheme to Private Sector Scheme, and vice versa) to another shall not vitiate the collateral issued under these Regulations.
TOTAL CONTRIBUTION
A Member who has contributed to more than one Fund, for the purpose of these Regulations, shall have the right to sum up (totalization) his total contribution for the purpose of calculating his benefits. The procedure and guidelines for totalization will however be issued by the Division responsible for social security within the Ministry responsible for social security matters.
