In response to widespread public concern over the rampant exploitation by moneylenders charging exorbitant and unregulated interest rates, the government has taken decisive action by instituting a cap of 2.8% per month, or 33.6% annually.
This development follows Legal Notice No. 21 of 2024, which was issued by the Minister of Finance, Planning, and Economic Development, Matia Kasaija, specifically targeting Tier 4 Microfinance Institutions and money lenders.
According to the new directive, which is grounded in the Tier 4 Microfinance Institutions and Money Lenders Act, Cap. 61, the maximum interest rate that can be charged by money lenders is now firmly established at 2.8% monthly or 33.6% annually.
This move comes after President Yoweri Kaguta Museveni Tibuhaburwa expressed his strong disapproval of the exploitative practices of moneylenders, labeling their high-interest rates as a serious threat to Uganda’s economic stability if unregulated.
It was developed following consultations with the Uganda Microfinance Regulatory Authority (UMRA), in accordance with Section 89 (1) of the Act.
Minister Kasaija reiterated the government’s dedication to fostering fair lending practices and improving financial inclusion for low-income individuals who depend on these financial services.
This announcement represents a significant advancement in the regulation of microfinance operations, ensuring that borrowers are not overwhelmed by excessive rates. It is expected to provide much-needed relief to numerous borrowers, especially those residing in rural and underserved areas. Stakeholders are urged to adhere to the new regulations, which take effect immediately, with UMRA assigned the responsibility of enforcing compliance and overseeing industry practices.
Recently, Minister for ICT and National Guidance, Dr. Chris Baryomunsi, highlighted that some moneylenders were operating outside the legal framework, prompting the government to reassess existing legislation to improve its effectiveness.
He encouraged the public to conduct thorough background checks before engaging with moneylenders.
He emphasized that although Uganda has a liberalized economy, the government cannot sit by while the population is driven into severe poverty by greedy money lenders.
Baryomunsi pointed out that there have been instances of money lenders involved in illegal activities, especially in rural regions, where they take advantage of those who are not well-educated.
He emphasized that some of these lenders pressure individuals into even signing contracts they do not fully understand, including documents for asset transfers, which results in victims unknowingly relinquishing their property.
A victim who prefered to speak anonymously, from Buhanda in Kamwenge district, still recounts his unfortunate experience with moneylenders.
He found himself in a tight spot and borrowed shs600,000, agreeing to repay it with an interest of shs90,000 within a month.
Unfortunately, due to unforeseen circumstances, he was unable to meet the deadline.
As a result, he ended up paying shs90,000 each month, ultimately accumulating a staggering interest of shs690,000, which brought his total repayment to shs1,290,000.
“Since that experience, I stopped going to money lenders. I am relieved to hear that the government plans to have a uniform interest rate to regulate these lenders. People have been losing their property because of shs500000. They were robbing us,” he noted.
