UMRA proposes new loan terms for money lenders

Kampala, Uganda | THE INDEPENDENT | The Uganda Microfinance Regulatory Authority (UMRA) is suggesting new changes in the traditional money lenders’ loan structures. The changes among others suggest  caps on interests charged by the money lenders

The changes are part of the proposed amendments to the Microfinance laws and regulations.

“As the regulators, we are mandated to make sure that there is sanity and order in the tier 4 microfinance sector in the country. To this end, we have continued to receive complaints from the public about some money lenders, and we sought it wise to make amendments to the current law,” said Edith Namugga, UMRA‘s Executive Director while meeting money lenders in Kampala.

Tier 4 financial institutions governing law has been in place for over five years.  Namugga says regulations need to be improved.

She further informs that the president is also the minister of finance to effect section 90 of this law which seeks to come up with a cap on the interest rates of money lenders’ loan facilities, which is not appropriate for market stability at the moment, hence other measures.

She says that to improve confidence, lending behavior and stability in the market without capping the interest rates, they have decided to work on section 112 of the Act, which allows the minister to make regulations for the better carrying into effect of the Act provisions, including the lending conditions. This is set to be carried in consultation with all stakeholders.

Namugga revealed that the authority is coming up with a “loan shop” where interest rates of the various institutions will be displayed for the borrowers to see and decide who to borrow from, as well as determine the loan period.

“We are not coming to announce any interest rates, instead what we are planning to do, is coming up with a loan shop where all interest rates will be exposed, and Ugandans will be Knowing which interest rate is prevailing or better, and we are emphasizing that all short term loans must not exceed six months, in order to protect both the lender and the borrowers,” she said.

On behalf of the borrowers, Norbert Mugisha, from Kolar Africa Limited, said that as UMRA is coming up with the new regulations, it should put in mind the aspect of creating a win, win situation between both lenders and borrowers, which is the only way the market can be stable and organized.

According to Mugisha, a short-term credit facility not to exceed six months wouldn’t be a bad idea, however it can affect business especially for the lenders who also depend on bank loans for capital, and will in turn shift the burden to the borrowers.

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