The government is in plans to reassess and enhance the legislation governing moneylenders to ensure more effective regulation.
Minister of ICT, Chris Baryomunsi, noted that the issue of moneylending has become increasingly prominent in public discourse, with rising concerns about individuals exploiting the public through moneylending services.
A decision was reached during a Cabinet meeting led by President Yoweri Museveni at State House Entebbe on September 23, 2024.
On September 25, 2024, while speaking to journalists at the Uganda Media Centre in Kampala, the minister highlighted that, despite existing laws mandating registration and licensing for individuals wishing to engage in moneylending, they found out that there are many unlicensed individuals pausing as moneylenders fleecing unsuspecting Ugandans.
“Therefore, we are examining the law with the view of strengthening it and removing all weaknesses that there is a legislation. After a careful and detailed discussion by the cabinet, it was agreed that they even advise the public that no one should be involved in the business of moneylending unless they are registered and hold a license,” he said.
He encouraged the public to consistently perform due diligence when considering where to borrow money, ensuring that the lenders are properly registered.
“Because if they fleece you and they are not registered, it may be difficult to seek court redress, because they are not known. We urge all those in the moneylending business to ensure they get registered and licensed to operate lawfully,” he added.
He encouraged the public to consistently conduct due diligence on the sources from which they intend to borrow money, ensuring that these entities are properly registered.
He pointed out that many of these operators are based in rural areas, where financial literacy is often lacking, consistently taking advantage of people’s desperate situations, coercing them into signing documents and transferring property titles, ultimately leading to the sale of their assets without their full understanding.
The minister further noted that many victims only realize the extent of their predicament when they are faced with repaying the loan along with interest.
Capping interests rate
After a thorough discussion, Baryomunsi said the cabinet observed that the interest rate charged by moneylenders is not properly regulated.
He stated that this does not stop at unlicensed dealers but even many registered and licensed moneylenders also engage in similar practices by imposing exorbitant interest rates, which borrowers may struggle to repay, ultimately leading to the loss of their property.
He stressed that it is one reason why they resolved to revisit the legislation governing moneylenders to enhance its regulatory framework under which, government intends to always regulate the interest rates for moneylenders, from time to time.
He noted that some moneylending companies impose an interest rate that can reach 20% per month on the borrowed funds, or even higher. “Even if Uganda is a liberalized economy, the government cannot sit by and see the population being fleeced into abject poverty,” he added.
“The cabinet guided that the interest rate must be calculated based and tagged on the annual inflation rate that is obtained in the country, so that they can still make profit without injuring others borrowing from them,” he added.
What the public must know about money lending
A money lending business should be a company registered with Uganda Registration Services Bureau (URSB) and licensed by Uganda Microfinance Regulatory Authority (UMRA) in accordance with the Tier 4 Microfinance Institutions and Moneylenders Act, 2016.
In a money lending business, the money lender should have a postal and physical address of the company (Form 18).
A money lender shall issue a receipt to a borrower for every repayment made on a loan and keep records for a period of 10 years.
A money lender should give a loan agreement to a borrower to sign not a sales agreement.
A money lender shall not dispose of any collateral given by a debtor as a sale, pledge or collateral for the loan advanced to him, unless 60 days have passed since a written demand notice has been issued to the debtor requiring him or her to pay any outstanding monies on the money advanced.
A money lender may, before carrying out a sale of collateral by public auction or private treaty, undertake a valuation and obtain a forced sale value of the collateral to determine the market value of the property.
A borrower shall retain the right to pay any outstanding monies and costs to redeem the collateral before it is disposed off.
Where a money lender takes possession of collateral under a money lending agreement, he or she is under a duty to exercise the same care and diligence over the collateral in his or her custody as would a prudent owner do with the property.
Where a collateral in possession of a money lender is lost, damaged or destroyed, the money lender shall be liable to pay the value of the collateral, or the replacement value of the collateral, after deducting the amount of the principal and interest, if any, outstanding within a reasonable time.
A borrower may, at any time upon request made in writing to the money lender, access information from the money lender.
