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Relief as Gov’t sets interest rates for money lenders

Peter 18th Nov, 2024 Financial Services Business Edge Reporter
Relief as Gov’t sets interest rates for money lenders

Mr. Matia Kasaija, the Minister of Finance, Planning and Economic Development. FILE PHOTO


In a bold move aimed at tightening the noose on unscrupulous money lenders, the Government has published Legal Instrument 21 of 2024, which caps interest rates on loans at not more than 2.8% per month (33.6% per annum).

Some incorrigible money lenders have been charging interest rates of 50% or more per month, while some microlenders operating through mobile money have been charging interest rates of more than 10% per month.

President Yoweri Museveni has repeatedly called for tough laws against money lenders, accusing them of defrauding clients and taking advantage of ignorant and desperate people.

  • The legal notice, titled; ‘The Tier 4 Microfinance Institutions and Money Lenders Act (prescription of maximum interest rate) Notice, which was issued on November 8 and published in the Gazette on November 15, was signed by Finance Minister Matia Kasaija.

“In exercise of powers conferred upon the Minister responsible for Finance by Section 89 (1) of the Tier 4 Microfinance Institutions and Money Lenders Act and in consultation with the Uganda Microfinance Regulatory Authority, this notice is issued this 8th day of November, 2024,” reads the legal notice.

It adds; “In accordance with Section 89 (1) of the Tier 4 Microfinance Institutions and Money Lenders Act, the maximum interest rate that a money lender shall charge on the principal or the actual sum of the money advanced as a loan to a borrower is 2.8% per month or 33.6% per annum.”

  • The Tier 4 Microfinance Institutions and Money Lenders Act was intended to set up a regulatory framework for microfinance institutions that do not accept deposits and are not supervised by the Bank of Uganda. This legislation aims to protect lower-income borrowers from exploitative practices in the lending market and to ensure better governance within the microfinance sector.

The relevant Section says; “The Minister may, in consultation with the Authority, by notice in the Gazette, prescribe a maximum interest rate which a money lender shall charge.”

It adds; “A money lender who charges an interest that is higher than the maximum interest rate prescribed by the Minister commits an offence and on conviction, is liable to a fine not exceeding 50 currency points (UGX1 million) and the court may, in addition to the fine order that the money lender’s licence be cancelled and the money lender pays the borrower any money paid in excess as a result of the interest rate charged.”

Speaking at the 8th Annual Conference of the Southern and Eastern Africa Chief Justices Forum in Kampala last month, Mr Museveni condemned the high interest rates imposed by money lenders, describing them as exploitative and a threat to Uganda’s economic stability if not properly regulated.

The President particularly criticized hidden contracts, where lending agreements are disguised as purchase contracts.

  • Among the other unscrupulous practices by money lenders is that of disappearing ahead of the deadline such that the borrower cannot not trace him/her to pay in order not to forfeit the collateral.

However, the law stipulates that when the money lender evades the borrower to the extent that it becomes impossible for the borrower to repay the money lender, the borrower may deposit the loan monies with the Uganda Microfinance Regulatory Authority and and the repayment shall be deemed to have been paid to the money lender.

Earlier, the National Identification and Registration Authority (NIRA) banned money lenders from using National Identity Cards as collateral for loans.

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