Will Amendment of the Law end Unscrupulous Money Lenders

by Christopher Kiiza
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Section 90(1) Tier 4 of Microfinance Institutions and Money Lenders Act, 2016 stipulates that the Minister of Finance may, in consultation with the Authority, by notice in the Gazette, prescribe a maximum interest rate which a money lender shall charge.

In section 90(2), the provision further states that, 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 fifty currency points and the court may, in addition to the fine order that the money lender’s license be cancelled and the money lender pays the borrower any money paid in excess as a result of the interest rate charged.

Despite the presence of this law (Microfinance Institutions and Money Lenders Act 2016) that regulates money lenders and microfinance institutions, the latter still set their own different interest rates and charge borrowers exorbitantly.

There is a growing apprehension regarding the frequency at which certain deceptive money lenders and microfinance institutions are allegedly deceiving Ugandans, enticing them to borrow money at excessively high interest rates, all while aiming to seize the collateral assets of borrowers who fail to repay their loans.

This always causes disagreements between the lenders and borrowers, which at times turn fatal.

On May 12, 2023, Police Constable, Ivan Wabwire, stationed at Kampala Central Police Station, fatally shot an Indian money lender near Parliament in Kampala.

The police confirmed that Wabwire had borrowed 2,130,000 shillings from TFS Financial Services in 2020.

According to law enforcement, Wabwire, who has a documented history of mental health issues, became uncontrollable when negotiations for the loan repayment plan with the leader broke down.

On Thursday, President Yoweri Museveni convened a caucus meeting of the ruling National Resistance Movement (NRM) party MPs at State House Entebbe where they discussed among others, the issue of money lenders.

It was brought to light that money lenders set their own different exorbitant interest rates to make abnormal profits, and/or seize the collateral assets of borrowers who fail to repay their loans.

It was also brought to light that money lenders charge as high as 20% and above in interest which left Museveni shaking his head.

“If inflation is 5%, 4%, [or] 3%, why should anybody charge interest of 20% per month. That is going to stop. We are going to stop it,” said Museveni during the meeting.

After the meeting, the President further posted on his official X (formerly Twitter) account vowing to take action against unscrupulous money lenders.

“While chairing the NRM Caucus at Entebbe State House this afternoon, I directed the Minister for finance to put out a statutory instrument within two weeks on the interest paid to money lenders in accordance with the inflation which the NRM will support. These moneylenders who are causing suicide to our young people, who allows them to operate? Why should someone charge 20% interest on a loan per month? This must stop,” Museveni posted.

The Government Chief Whip, Hamson Obua while addressing reporters about the caucus resolution, announced that the Caucus resolved to fully back the amendment of Section 90 of the Microfinance Institution and Money Lenders Act 2016 in two weeks to put an end to the exorbitant interest rates that money lenders charge.

“We would want that particular provision envisaged under Section 90 to be operationalized so that we have regulations that will outlaw even in the worst case scenario, criminalize charging outside the prescribed interest rates in the law by money lenders,” said Obua.

The Government move to take action against unscrupulous money lenders looks like a long-awaited intervention as many Ugandans took to social media to say that the move was long overdue.

Sidney Miria on Twitter said, “…..The burden of high-interest rates on loans is choking the economy. It is making it harder for people and businesses. These exorbitant interest rates significantly affect one’s ability to escape the cycle of debt and achieve set financial goals.”

Similarly, Kiiza Maggie posted, “Putting a cap on interest rates is a much-needed intervention to protect the youth from the exploitative practices of moneylenders.”

Furthermore, Mr Jordan concurred, “I fully support you H.E. on the issue regarding the regulation of interest rates charged by money lenders. It’s indeed alarming to see the exorbitant interest rates being charged, especially when it comes to loans that are often taken by vulnerable individuals who are already struggling financially!”

Will Money Lenders Really be Controlled

This is not the first time president Museveni has lamented about inhumane interest rates charged on loans acquired by Ugandans.

Secondly, one would think that money lenders target only unlearned citizens who perhaps are ignorant about the law. However, that is not case the case. Even lawmakers have fallen victim to money lenders.

Many Members of Parliament have fallen prey to the traps of money lenders who harass them every now and then over repayment.

In July 2023, Speaker of Parliament, Anita Among threatened to cancel memorandum of understanding signed between Parliament and various money lenders after several complaints of harassment and the high-interest fees the MPs are being charged.

The Speaker’s threats followed a complaint raised by Yusuf Mutembuli (Bunyole East), who blamed the Minister of State for Finance (General Duties), Henry Musasizi, for failure to fulfil provisions in Section 90(1) of Tier 4 Microfinance Institutions & Money Lenders Act, 2016 that mandates the Minister to put in place minimum interest rates to be charged by the money lenders, instead of leaving some MPs victims to the schemes orchestrated by money lenders.

In August, 2023, Parliament took a decision and announced that it was canceling agreements with money lenders over harassment of MPs due to delayed loan repayments.

The Deputy Speaker, Thomas Tayebwa announced that the top administration of Parliament agreed to evict and cancel all agreements signed between Parliament and money lenders.

Although this decision makes MPs safe since they have the protection of Parliament, there is millions of Ugandans who have no such a shield.

In the same Parliamentary session where Tayebwa communicated Parliament’s decision to cancel MoUs with money lenders, Bugabula South lawmaker, Maurice Kibalya informed the House that a group of money lenders had been terrorizing residents in Kamuli district, using inhumane methods like beating up customers for failing to pay on time.

Kibalya’s words were echoed by various MPs, which shows the magnitude of the problem.

The most worrying scenario is that Kibalya insinuated that money lenders work with police for protection.

“This group is untouchable. When they are recovering their money, they move with boda bodas and…, they arrest and beat. And those who were beaten tried to report to Police, but the response they got was that these people are untouchable. What is more terrible is that these people confiscated national IDs from whoever picked loans from them,” he said.

The National Identification and Registration Authority (NIRA) has since prohibited the use of National Identification Cards as security for obtaining loans.


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