Moneylenders Resist Government Regulation
By The Public Lens
Uganda’s moneylenders are pushing back against the newly passed Tier 4 Microfinance Institutions and Money Lenders Bill, 2024, which aims to regulate interest rates.
The bill grants the government authority to set limits on interest rates, but moneylenders argue this infringes on their private business.
Ben Kavuya, chairman of the Uganda Moneylenders’ Association, emphasizes that moneylenders use personal funds, unlike banks and microfinance institutions that rely on public deposits.
He questions why the government should impose rate caps on independently funded businesses.
Kavuya suggests the government focus on capping rates for government-backed loans, such as poverty alleviation programs.
This stance has sparked debate in Parliament, with some MPs advocating for rate caps to protect borrowers from predatory lending practices.
Proponents of the bill argue that unregulated interest rates have devastating consequences, including debt traps, foreclosure, and even suicide.
The Parliamentary Committee on Finance notes that moneylenders’ interest rates can reach 120% annually, far exceeding commercial banks’ average rate of 18.3%.
The government supports interest rate capping, citing the need to protect borrowers from exploitation.
State Minister for Finance Amos Lugolobi assures that genuine moneylenders will operate within a regulated framework, unaffected by the new law.
By the end of 2023, the Uganda Microfinance Regulatory Authority (UMRA) had licensed 1,802 institutions, with 1,402 being moneylenders.
This growth raises concerns about lending practices, prompting calls for stronger regulatory oversight.
Section 89 of the Tier 4 Microfinance Institutions and Moneylender’s Act, 2016, allows courts to intervene in money lending agreements with excessive interest rates or charges.
However, this provision has yet to be enforced, despite being passed eight years ago.
