How digital lending guidelines will work

Online money lenders are now currently banned from charging the defaulting customer interest that exceeds 50 per cent of the total amount of borrowed they lent the latter, according to new digital guidelines launched by Uganda Microfinance Regulatory Authority (UMRA).

Unveiled in September last year, the Digital Lending Guidelines were last week officially launched by UMRA at an event attended by a section of online money lenders and officials from Bank of Uganda and government.

The 25 guidelines summarize how the online lenders should conduct business and interact with customers in a legally acceptable manner.

Digital or online lenders are “supposed to be fully licensed by UMRA as their regulator, have a physically locatable address, always furnish their clients with their loan updates, observe the principle of customer confidentiality, seek customer’s consent before sharing their information anywhere, and give out loans in accordance with the Ugandan credit policy.”

The guidelines further bar the lender from recovering their money through court processes, use of threats or other criminal means, provide customer with avenues of filing complaints, avoid false advertisement, and declare the source of their income and that of their clients to ensure that they fulfil the requirements of Anti-Money Laundering (Amendment) 2022.

“A digital credit provider using any loan app shall register the trading business name under the Company Act if it differs from the registered company name. A digital credit provider may extend digital credit to customers according to its credit policy,” reads part of the guidelines.

“A digital credit provider shall not charge an interest penalty on default which exceeds half the initial interest at the time of offering a loan and may recover a maximum amount from a customer with respect to a nonperforming loan. A digital credit provider may set borrower limits in its credit policy and the limits shall comply with any requirements prescribed by the UMRA,” the guidelines add.

The rules further emphasize that a digital credit provider shall establish a complaints redress mechanism, including a channel for communicating customer complaints, and shall ensure proper communication of this mechanism to its customers.

UMRA was last year prompted to draft these guidelines following multiple complaints from the public over the existence of loan applications that were stealing from Ugandans.

Monitor on April 5, 2023 carried an article titled “Online Money Lenders Preying on Ugandans,” which highlighted how the loan sharks were charging exorbitant interests, illegally accessing people’s data and threatening their customers who failed to pay in time.

UMRA’s manager in-charge of Microfinance Institutions Rachael Kawooya informed lenders that it was sad that these online money lenders had gone ahead  to brag in the Monitor story- about how they were operating, justifying their actions which prompted the regulator to benchmark in Kenya and come up with these guidelines.

Now, UMRA executive director Edith Tusubira says “the weird behaviors and unprofessionalism of some of the online lenders had disgusted the public and thus needed these guidelines.”

“We want to live in a society of fairness, where people come and borrow but are not cheated by you (lenders) because we understand the world is moving towards digital,” she said at the launch of the guidelines.

In his speech read to the gathering by assistant commissioner for financial services Bob Munenne, microfinance state minister Haruna Kasolo said “although digital technologies are supporting financial inclusion, especially through offering credit to people in the remotest areas, the government must protect citizens from being exploited.”

Kasolo had banned the licensing of online lenders in February over what he called unclear operations but the ban was later lifted.

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