Recent news reports that a Member of Parliament had been whisked away to civil prison for delaying to complete payment of a loan from a money lender instantly caught public attention.
Aside from the prominent names involved, what really made people to sit up and pay heed was the huge sums being mentioned; clear evidence of the financial clout of Uganda’s money lenders.
Apparently, few of us, be you a VIP or a lowly wage earner, are immune to their charms. At the same time, a big proportion of us are walking around like zombies mentally juggling debts. Desperate to find a way out of this vicious circle of borrowing from C to pay back A and hoping B doesn’t begin calling you about another loan you took out in between.
During the past decade and half, the post-dated cheque has taken on an altogether new meaning when it comes to day-to-day survival.
Money lending in Uganda has come a long way since the late 1970s and 1980s. That was a period when smartly dressed characters would be seen hanging around the upper end of William Street and along Luwum Street, eager to lead you into dark and cramp offices for further negotiations.
One major advantage of starting a money lending business is that it didn’t require much in the form of overheads, so in subsequent years, several people grouped together in order to increase the pool of available funds.
Until 2016, when the Uganda Microfinance Regulatory Authority (UMRA) was set up, these ladies, but predominantly gentlemen, worked in the shadows. They were unencumbered by the tight regulations imposed on commercial banks by Bank of Uganda and this allowed them free rein to set their own terms and conditions which tended to be stiff depending on the client.
Financial challenges being a constant hazard of daily life, there is always a steady stream of people seeking their services. Unfortunately, many would also suffer the consequences of default by losing personal property and other assets. The government had an obligation to do something and eventually in May 2016, parliament passed the Tier IV Microfinance Institutions and Money Lenders Act.
Under its provisions, UMRA was given the mandate to license, regulate and supervise all Tier IV financial institutions together with oversight of the money lending business.
UMRA has the responsibility to carry out onsite inspections at the moneylender’s place of business to ensure compliance with their licenses, the provisions of the Act and enforce any other pertinent regulations.
According to UMRA, to date, there are about 150 licensed money lending entities across Uganda, but eight things they are not allowed to do specifically;
-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.
-Charge exorbitant and compound interest rates on loans.
-Borrowers should not sign sale’s agreements for accessing credit facilities instead of loans agreements.
-Borrowers should not sign transfer documents in favour 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.
All these rules are largely ignored by the informal money lenders. They are willing to take on higher risk and reap the considerable rewards of usury– that is, lending money at unreasonably high rates of interest.
While UMRA may set an interest rate ceiling of perhaps 24%, they will charge you 30%and even 35%. This is also an underhanded way for the really unscrupulous variety of money lenders to eventually seize your property cheaply, knowing the chances of you paying back are very slim. There have even been cases when money lenders will go into hiding to prevent you completing payment and getting back your security.
This is why it is vitally important that you make sure you understand all the risks involved and compare all possible options before making a decision about approaching a money lender. That said however, when you are in desperate need of cash, all reasoning is thrown out the window.
From time immemorial, informal moneylenders have lurked on the fringes of the world’s financial systems, always ready to help out in interludes of urgent need, but usually at an exorbitant cost. In Uganda, if family, friends or your SACCO cannot help, you go to them.
The American term, ’loan sharks’, came about by no accident. When taken to extremes, especially involving criminal elements, money lending can often be a predatory business, and you the borrower, are the prey.
Our strongest attraction to money lenders is the speedy way they operate. Your problem has to be solved now, be it school fees, a medical bill or any other emergency requiring quick cash.
Commercial banks will go into formalities that take up precious time, but the money lender sizes you up, considers your security and decides within minutes whether you are good for the loan or not. It helps if you have been recommended by a friend who also happens to be a regular client.
Trouble comes when you fall behind in servicing your loan and in the worse scenario, people are threatened with violence.
It would be incorrect and unfair to lump money lenders together in one basket. Many are really decent in the way they do business, following the stipulated rules and providing a good service to their clients. It is the exceptions that give the rest a bad name.
However like in all things to do with borrowing, if you don’t have a solid plan for how you are going to repay the loan, you will always find yourself in desperate straits. But again, with the emergence of the Internet as major channel for doing business, there is now an explosion of lending apps very ready to cater for your desperation.
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