We applaud move to police moneylenders

The move by the House to compel the government to consider introducing caps on the costs of credit has unsurprisingly been warmly received by the vast bulk of Ugandans.

The Tier 4 Microfinance Institutions and Moneylenders Bill, 2024, passed by lawmakers last week, makes clear its intent to stop Shylocks in their tracks. Which is just as well. 

The House Committee on Finance, Planning and Economic Development established that doorstep lenders, payday lenders and online mobile loan lenders charge anything north of 120 percent per annum for short-term loans.

These illegal lenders who offer informal loans without paperwork, often at high interest rates, usually make life terribly difficult for debtors. The loan sharks have well and truly taken advantage of Uganda’s lax regulation to expand aggressively on the back of selling high-cost credit.

For a long time the government has been uncharacteristically silent about the existence of Shylocks and how they continue to thread through the fabric of the country with sinister repercussions. The fact of the matter, though, is that the cost of living crisis is driving many—especially the poor—into the grasp of illegal moneylenders. 

We join many observers in coming to the conclusion that playing the proverbial ostrich with the head in sand simply because Uganda runs a liberal economy should not be an excuse, really. It is incumbent on the government to ensure that borrowing is affordable for all. If it takes an interest rate cap to pull this off, so be it. 

Expectedly, the Uganda Money Lenders’ Association has protested Parliament’s decision to pass the moneylenders Bill into law. The loose body argues that setting an interest rate cap could put the legal doorstep lenders and payday lenders out of business. Maybe it will, but the legislation in question undoubtedly meets the ‘for the greater good’ threshold.

As well as hoping that President Museveni signs into law the moneylenders Bill, we also hope that state actors will be alive to the damage wrought by mushrooming online mobile loan apps. The fulcrum of their business model is fintech provided by payment aggregators that are licensed and regulated by the Bank of Uganda (BoU) and the Financial Intelligence Authority (FIA). 

BoU and FIA should continue to light a fire under the feet of the aforesaid payment aggregators. Why? Because the interest rates charged by the rogue mobile lending apps range from 30 percent to 50 percent, wait for it, per week. The language these lenders use during loan recovery leaves a lot to be desired as do their ethics, or lack of. The latter culminates in a breach of consumer privacy data by way of access to call logs, SMS and contacts list. 

These unlicensed digital lenders that engage in what BoU once rightly described as “predatory lending behaviour, unethical collection practices and harassment of borrowers” cannot be wished away.

The government, which recently rationalised the sector regulator—the Uganda Microfinance Regulatory Authority (UMRA)—evidently has its work cut out. We hope it puts its best foot forward as Ugandans—especially the have-nots—will doubtless feel the weight of the choices it makes.