Money lenders asked to follow the law or miss out on licenses

Kampala, Uganda | THE INDEPENDENT |  Money lenders and microfinance institutions have been advised to use legal means to conduct their businesses instead of resorting to the use of force, especially in recovering money.

This comes at a time when the small lenders are trying to get to terms with the recent directives by the industry regulators and the President regarding collateral and the recovery of loans, which were a cause of conflict and sometimes violence.

President Yoweri Museveni in September wondered how lenders were allowed to charge “20 percent interest per month”, which amounts to 240 percent annually.

Speaking at the launch of the Microfinance and Saccos Governance Forum in Kampala, some borrowers wondered why the President’s directive was not being implemented as interest rates remain high.

Sheila Birungi, Head of the Legal Department at Uganda Microfinance Regulatory Authority (UMRA), however, said some lenders have been known to charge as high as 50 percent monthly which translates to 600 percent a year.

But she says while the sector regulators and the government are working out a solution, there is no way the lenders can be stopped from setting the cost of their services, under Uganda’s economic liberalization policy.

However, Birungi says the discussions are ongoing following the refusal by parliament recently to introduce interest caps.

As an internal solution, she says, they will not be granting licenses to applicants who intend to charge high interest rates, adding that a cap would be discriminatory unless extended to all the financial industry.

The President also, at another forum, directed that no one should be evicted from their homes because of failure to pay up a loan.

Lenders at the event organized by the Uganda Institute of Banking and Financial Services (UIBFS) also wondered what they were supposed to do to customers who staked their houses or homes and then defaulted.

Others claimed that some borrowers are now taking advantage of the president’s directive and refusing to pay.

Birungi says that in such a case, if the home was staked in the contract, it is advisable that the lender secures a court order to enforce the contract.

The forum was organized under the theme: “Strengthening governance practices for growth and sustainability”.

Goretti Masadde, the Chief Executive of the UIBFS tipped the Moneylenders, MFIs and SACCOs that sustainability is no longer about ways of making profit but ensuring good governance that caters for people and the environment.

She said that environmental, social, and corporate governance (ESG) was increasingly becoming part of the business operations globally, and that the lenders, just like any other sector, can only embrace it for sustainability’s sake.

Dison Okumu, the Chief Executive Uganda Institute of Corporate Governance, urged the leaders of SACCOs and MFIs to focus on putting in place structures that  create trust among the public.

According to him, abiding by the laws and taking advantage of the laws and regulations is not enough to guarantee sustainability if the structures of the organisation are not people-focused.

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