The Minister of Finance, Planning, and Economic Development Hon. Matia Kasaija has ordered all money lenders to charge a 2.8% monthly interest rate on all loans extended to their customers.
The directive is in accordance with section 89(1) of the Tier 4 Microfinance Institutions and Money Lenders Act, which states that the maximum interest rate that a money lender shall charge on the principle or the actual sum of the money advanced as a loan to a borrower is two point eight percent (2.8%) per month or thirty-three point six percent (33.6) per annum.
“In exercise of the powers conferred upon the minister responsible for finance by section 89(1) of the Tier 4 Microfinance Institutions and Money Lenders Authority, this notice is issued’’ read a notice issued by Minister Kasaijja.
This followed public outcry over the exorbitant unregulated interest rates that seem to be aimed at confiscating people’s assets.
The directive aims to shield consumers from predatory lending practices while ensuring that borrowing remains accessible and fair. By setting a clear cap on interest rates, the government intends to create a more equitable financial environment for individuals seeking loans.
John Marry Kisembo, a well-known money lender in Kampala, is skeptical about the applicability of the minister’s directive. He believes that setting a maximum interest rate could lead to the emergence of black market loans in the lending industry. In such a scenario, unregulated lenders might charge even higher rates, further disadvantaging borrowers who cannot obtain loans from legitimate lenders complying with the directive.
According to a report by the Bank of Uganda, the country’s financial sector has been grappling with rising default rates, partly due to high interest charges imposed by some money lenders. In 2022, over 40% of borrowers reported difficulties in meeting their loan obligations. The new regulation seeks to address these challenges by making loans more affordable and reducing the risk of borrowers falling into a debt trap.
