President Yoweri Museveni has announced plans to introduce new legislation aimed at regulating Uganda's money lenders, citing concerns over predatory practices.
The President made this statement at the Southern and Eastern Africa Chief Justice Forum (SEACJF) Conference and Annual General Meeting held at Speke Resort Munyonyo, Kampala.
“Moneylenders are a problem. They go to villagers and deceive them and charge exorbitant interest rates, but the inflation rate in Uganda is very low. The inflation rate is 3 percent or even lower. , some lenders are charging more than 240 percent,” Museveni said.
He expressed particular concern about money lenders exploiting illiterate borrowers by disguising loan agreements as sales contracts, often resulting in loss of property.
“A loan agreement is disguised as a sales contract. If I were the judge in charge of the case, I would ask myself why the Munyonyo house costs Shs1 million. Recognizing the broader context That's a good thing. I want to enact a law to fight money lenders,” Museveni said.
Currently, moneylenders in Uganda are regulated by the Uganda Microfinance Regulatory Authority (UMRA) under the Tier IV Microfinance Institutions and Moneylenders Act 2016. This law oversees the licensing and management of tier 4 microfinance institutions and money lenders.
According to UMRA, there is no cap on interest rates on loans from lenders and commercial banks, and lenders are free to set their own interest rates. Meanwhile, the country's central bank interest rate is 10% as of August 2024, according to Bank of Uganda data.
TELCOM Credit Service Provider Warning
Telecommunications service providers are pursuing the Approved Credit Provider designation to strengthen their efforts with loan defaulters. Richard Yego, CEO of MTN MOMO, gave an overview of the initiative and highlighted how the certification will integrate credit information into a central database, which banks and telecom providers can access through credit reference agencies. did.
“This solution allows us to track customer credit behavior across all networks and banking systems,” explained Mr. Yego.
“Even if a customer changes their SIM card or switches to another network, the national identification number (NIN) is used for tracking.Unlike a phone number or bank account, the NIN remains constant. This allows us to follow up on delinquents more effectively.”
Lawmaker arrested over loan default
There have already been some high-profile cases of crackdowns on loan defaulters. Last year, several MPs, including Davis Kamukama, Patrick Mutono and Robert Mwesigwa Lukaari, were arrested and charged in court over unpaid loans.
Mr Lukaari was charged with failing to repay a debt of Sh700 million, while Mr Kamukama owed Sh69.1 million. Dr Mutono is facing foreclosure for defaulting on a Sh300 million loan, highlighting the legal risks for those unable to meet their financial obligations.
Lenders Association Drives Industry Standards
Chairman of the Association of Money Lenders Uganda (AMILU), Jonathan Akandwanaho, announced efforts to standardize loan documentation and ensure compliance with best practices. This includes reviewing applications, contracts, and offer letters to ensure that the lender is following legal procedures.
“Going forward, the problem of lenders illegally seizing properties in exchange for loans will be a thing of the past, as this practice is illegal and tarnishes the image of the industry,” Akandwanaho said. .
He highlighted plans for more rigorous customer evaluations, using credit reference bureaus (CRBs) to assess a borrower's ability to repay a loan beyond the collateral provided. He added: “It will require all lenders to inspect CRB checks before issuing loans, reducing the risk of lending to individuals who are already in debt.”
Akandwanaho also mentioned the ongoing disputes between lenders and borrowers that often arise when customers take out additional loans when they are already in debt. He stressed that the CRB's failure to carry out checks has led to an increase in defaults and disputes between lenders and borrowers.
Improving training and industry practices
The association is working with the Uganda Microfinance Regulatory Authority (UMRA) to conduct workshops aimed at educating moneylenders and encouraging them to join the Uganda Moneylenders Association. This training focuses on implementing uniform practices for loan recovery and improving professionalism across the industry.
“An important part of our reforms is establishing standardized collection methods. This will prevent unprofessional practices such as contacting the borrower's relatives for payment,” Akandwanaho said. said.
He also outlined plans to classify lenders into two groups: legal lenders who meet regulatory standards and illegal operators. “We will create a list of eligible lenders to make it easier for customers to identify reputable lenders when seeking financing,” he added.
These reforms come as part of broader efforts to regulate the money lending sector, increase transparency and protect both lenders and borrowers in Uganda's evolving financial landscape.
Reactions to Museveni's remarks
President Yoweri Museveni's proposal to introduce new laws to regulate money lenders has provoked mixed reactions from parliamentarians and legal experts.
Bushiro County East MP Medard Lubega Segona expressed partial support for the idea, especially if it included stricter regulation and licensing requirements for money lenders. However, he expressed concern about whether such legislation would be applied in practice without offering alternative financial solutions.
“I support this law insofar as it criminalizes unlicensed and unregulated moneylending. But before we introduce such a law, there must be a viable alternative. Do we have options to ensure affordable lending services? Without alternatives, people will continue to rely on unregulated lenders,” Segona said.
Segona warned that if the law is introduced without addressing these issues, lenders may find ways to operate in secret.
“If this law goes into effect, moneylenders will go underground. They may create contracts disguised as sales contracts, and this practice is effective in circumventing regulations. “Furthermore, access to justice through courts is slow, often taking five to 10 years to resolve such cases.”
He also advised President Museveni to take a more serious approach, seek advice and develop comprehensive solutions. “Otherwise, at this point it seems more like a political statement than a practical solution,” Segona said.
Human rights lawyer George Musisi also commented on the issue, noting that Uganda already has legal frameworks in place, such as the Tier IV Microfinance Institutions and Money Lenders Act, which address many of the challenges in this area.
“We already have laws that criminalize many of the existing problems, such as unlicensed moneylending, undocumented loan agreements, and illegal compounding. They are operating in disregard of the law. The real question is why this current law is not fully enforced,” Musisi said.
He noted that current banking processes are often too slow and bureaucratic, and stressed the need for governments to facilitate access to microfinance as a solution.
“Microfinance, with its lower interest rates, may be a better option, especially for people who really need help.Currently, it can take up to three months for even business owners to get a loan from a bank. Yes,” Musisi added.
Both Segona and Musisi emphasized the importance of providing affordable and accessible financial services as part of regulatory reform, and without such measures, attempts to regulate money lending will be ineffective. It was suggested that this may turn out to be the case.
