Stakeholders in the money-lending sector have advised Ugandans to refrain from borrowing or obtaining loans from unregistered individuals.
They emphasized that all entities engaged in money lending must be registered and licensed by the Uganda Microfinance Regulatory Authority (UMRA).
This warning follows a recent Cabinet meeting at State House Entebbe, chaired by President Gen. (RTD) Yoweri Kaguta Museveni Tibuhaburwa, which agreed to review and enhance regulations governing moneylenders.
The decision was prompted by concerns that numerous moneylenders are driving many Ugandans into severe poverty due to exorbitant, unregulated interest rates. The Minister for ICT, Dr. Chris Baryomunsi, highlighted an additional issue regarding the growing number of individuals masquerading as money lenders, exploiting vulnerable Ugandans in difficult situations.
Reports suggest that some registered and unregistered moneylenders are pressuring individuals into signing agreements they do not fully understand, including transfer documents, which can result in victims unknowingly relinquishing their assets.
The government is now seeking to regulate the interest rates charged by moneylenders to safeguard Ugandans and eliminate fraudulent operators from the market.
Moneylenders speak out
The Business development manager at Anekama Financial services-ChamTowers, Arnold Katongole, noted that though the majority of borrowers do borrow with urgent need, they should always do background checks on individuals or companies they intend to borrow money from.
Katongole cautioned borrowers against misusing funds by diverting them from their intended purposes, emphasizing that this behavior is a significant factor contributing to the high rate of defaults.
During the recent opening ceremony of the Southern and Eastern African Chief Justices Forum held at Speke Resort-Munyonyo, President Museveni urged the government to advocate for the creation of legislation aimed at regulating the practices of money lenders.
The President committed to taking a decisive action against predatory money lenders who take advantage of ignorant Ugandans.
He emphasized that these lenders are increasingly problematic, as they target rural communities and deceive vulnerable individuals by imposing excessively high interest rates.
UMRA was established under the Tier4 Microfinance Institutions and Money Lenders Act, 2016 to license, regulate and supervise all Tier 4 Microfinance Institutions and Money Lenders in Uganda.
The Tier 4 Institutions include Savings and Credit Cooperatives (SACCOs), NonDeposit Taking Microfinance Institutions, Self Help Groups, and Moneylenders. The Authority hereby informs SACCOs, Moneylenders, and Non-Deposit Taking Microfinance Institutions to renew their licenses for the calendar year 2024.
The Authority further cautions the general public not to transact with unlicensed Institutions /Companies that provide financial services as stipulated in the Tier 4 Microfinance Institutions and Money Lenders Act, 2016 and the accompanying Regulations.
The Regulatory Do’s for Money-lending
An individual or Company incorporated in Uganda and carrying out money lending business can apply for a license.
The entity seeking a money lending license from the Authority must be a legal entity with an established office.
A licensee shall display the license at all the premises where money lending is transacted.
A license shall expire on the 31st of December in every year and may be renewed annually upon application to the authority.
Furnish the borrower with a copy of the loan agreement including all fees.
Display interest charges at all times at the premises where money lending business is conducted.
Keep and maintain records including proper books of accounts, a cash book, ledger, register of securities register of debtors in a form that the Authority may require.
The Regulatory Don’ts for Moneylending;
A company shall not operate a money lending business without a license.
A money lender shall not take National ID, passport, warrant card, or other documents establishing the identity or nationality of the holder, bank savings, ATM cards and security codes for the ATM cards as collateral for money borrowed.
Charging exorbitant and compound interest rates on loans.
Borrowers should not sign sale’s agreements for accessing credit facilities instead of loan agreements.
Borrowers should not sign transfer documents in favor of the lender as part of the security for accessing credit.
A money lender is not authorized to carry on business under more than one name.
A money lender shall not take client deposits.
A license issued is not transferable or assignable.
