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Document Type

Case Study

Abstract

In 1991, after a long period of politicized lending to state-owned businesses known as parastatals, Tanzania set out to reform its financial system by legalizing private financial institutions and cleaning up state-owned banks. As part of this effort, Tanzania established the Loans and Advances Realization Trust (LART) to acquire nonperforming assets from state-owned banks in exchange for government bonds. Following these transfers, the Tanzanian government then recapitalized the transferring institutions. LART’s mandate was to recover outstanding amounts on nonperforming assets and to help debtors restructure to facilitate repayment. To enhance LART’s ability to make recoveries, Tanzanian authorities established a special LART Loan Recovery Tribunal with simplified procedures and exclusive jurisdiction over transferred assets. Tanzanian authorities initially established LART with a five-year timeframe, subject to a one-year extension. In 1996, Tanzania amended the legislation establishing LART to include private financial institutions and extend its operations to June 30, 2000, with the possibility of two one-year extensions. During its lifetime, LART acquired approximately TSh 85 billion ($96 million) in nonperforming assets—TSh 27 billion initially after its establishment and a further TSh 58 billion in 1996. By the time LART concluded its operations in January 2001, it had recovered approximately TSh 33 billion.

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