Kampala — A law to control moneylending in Uganda is here.
The law, 'Tier 4 Microfinance Institutions and Money Lenders Act 2016, takes effect on July 1, and is expected to put an end to 'briefcase' moneylenders who rip off borrowers.
This law will also regulate Savings and credit Cooperative Societies (Saccos), village Saccos and self-help groups.
Speaking during a meeting with journalists in Kampala last week, Mr Andrew James Nyakoojo, the technical advisor in the financial services department of the Finance ministry, said the new law is aimed at managing money lending businesses in Uganda.
"We have put criteria for licensing moneylenders. Intuitions which have ill motives such as defrauding citizens will not be licensed.
Bank of Uganda currently regulates Microfinance Deposit taking Institutions with minimum capital of Shs500 million. But there has been no regulation for money lending businesses.
"People have been losing money; no one is looking at institutions lending credit below that (Shs500 million). This law is going to check such funds," Mr Nyakoojo said.
Moneylenders have been operating in a way that when you take a loan from them, you sign a sales agreement whereby if you fail to pay, you lose out more than what you borrowed because they apply compound interest.
The law also allows the minister of State for Microfinance, Mr Haruna Kyeyune Kasolo, to set the highest interest rate which moneylenders should charge borrowers.
The Act also provides for an independent regulator - Uganda Microfinance Regulatory Authority (UMRA) to oversee money lending businesses in Uganda. The ministry is in the process of recruiting Board members to fill the vacant positions. "Today I've submitted names for the people to sit on the board of UMRA," Mr Kyeyune said.
All moneylenders must have physical locations and operate as a company.
"From July 1, we won't have individual moneylenders. The law stipulates that they register as a company," Mr Kyeyune said.
Moneylenders will be required to renew their licences annually. In fact, it will be an offence for a moneylender to operate without a licence.
In the event that a borrower wishes to repay a loan and the moneylender evades the borrower, making it impossible to repay, the borrower can deposit the loan with the Authority (UMRA). UMRA will then transmit the money to the moneylender.