Mr Jonan AKandwanaho (right), the chairperson of the Association of Money Lenders in Uganda, addresses the media in Kampala yesterday. He is flanked by Mr Bellata Kamugisha, the association’s secretary for compliance and policy. PHOTO | VICENT LUSAMBYA
Money lenders across the country yesterday rejected in unison the new 2.8 percent monthly cap on interest rates imposed by the government.
The moneylenders, under their umbrella, the Association of Money Lenders in Uganda (AMLU), said the cap was unfair and would drive them out of business. They said their businesses had sustained the economy by supporting the majority of Ugandans who cannot access bank loans.
Mr Jonan AKandwanaho, the association chairperson, said: “We understand the need to protect customers but we also need to ensure we can operate sustainably. Some of the financial institutions lend for as high as 17 percent per month, including some banks. So, we are wondering why the moneylenders are being capped at 2.8 percent per month.”
“It would have been possible for us to be consulted because we are stakeholders, who play a big role with a turnover of about Shs1.4 trillion in the lending industry,” he added.
However, the government maintains that the cap on interest rates was introduced to protect borrowers from exploitative lending practices.
Mr Jim Mugunga, the Finance ministry spokesperson, said: “The ministry introduced the interest rate cap, which remains in effect to this day. This 2.8 percent cap was carefully crafted with the best interests of Ugandans, the financial sector, and its operators in mind.”
“While moneylenders are entitled to their opinions, which we respect, there are established channels for engagement and legal recourse to address any concerns they may have,” he added.
Mr Matia Kasaija, the minister of Finance, Planning and Economic Development, last month issued Legal Notice Number 21 of 2024 where he capped the interest rates for all Tier 4 Microfinance Institutions and Money Lenders at a maximum of 2.8 percent monthly and 33.6 percent annually.
This implied that for every Shs100,000 lent out by a money lender, it could attract an interest of Shs2,800, which money lenders yesterday said means they have no business.
Mr Bellata Kamugisha, the association’s secretary for compliance and policy, said despite having a fully constituted association with membership, the government did not consult them while coming up with the cap on interest rates.
AMLU, she said, wants to ascertain from a legal point the processes under which the government arrived at this particular rate.
“We only saw the regulations signed by the minister through the media. We have decided to write to the Attorney General and respective authorities for mediation. But if results indicate that the government is not willing to work with us, we will have no option but to seek legal redress in the courts of law,” Mr Kamugisha said.
Before the introduction of the rates, President Museveni had, on several occasions, attacked moneylenders, whom he said were exploiting the population by charging exorbitant interests.
But Mr Kamugisha yesterday warned that the new interest rate, which backtracks the efforts of financial inclusion, would push back the ongoing government poverty alleviation efforts like the Parish Development Model (PDM).
“The interest cap is closing the sector, yet we play a vital role in financial inclusion. At duration, a bank will take almost two to three months to disburse money to a client yet a money lender gives within two days after doing their due diligence,” he said.
Mr Kamugisha added: “Money lending has supported group markets, women, and associations to stand where the banks say no. For example, people who import goods sometimes meet tax changes. On assessment, probably the tax cost is much more than they projected, they resort to us, money lenders, as a timely rescue, unlike the banks.”
He also said the cap on interest rates could derail the association’s efforts to aid the regulator in formalising the sector to have uniform agreements on guidelines.
“The regulator’s hands are tied, 35 staff cannot regulate the sector countrywide, a reason we chipped in. We have since transitioned more than 1,800 lenders from informal to formal operations out of the 60,000 informal lenders. But this cap risks backtracking these efforts,” Mr Kamugisha said.
The September 2023 statistics from the sector regulator, the Uganda Microfinance Regulatory Authority, indicated that a total of 1,302 licensed money lenders had extended loans to about 2.5 million customers, with an outstanding portfolio of Shs1.2 trillion.
