KAMPALA, UGANDA: The Uganda Microfinance Regulatory Authority-UMRA is launching what they have called impromptu operations against Tier4 microfinance institutions and moneylenders that are either not registered or are violating licensing terms.
This follows persistent complaints from the public about fraud in the industry as well as uncoordinated interest rates and illegal collateral asked for by the lenders. Tier 4 microfinance institutions include SACCOs, Non-deposit taking microfinance institutions, self-help groups and community-based microfinance institutions and moneylenders.
In the past, persons undertaking money lending businesses were licensed by magistrate’s courts under the Money Lending Act, 1952. In 2016, the Tier 4 Microfinance Institutions and Money Lenders Act 2016 was made and operationalized by the Tier 4 Microfinance and Money Lenders (Money Lenders) Regulations, 2018.
The money lenders are currently operating illegally unless they are licensed under the Tier 4 Microfinance Institutions and Money Lenders Act 2016, according to the regulator, UMRA. But many were already in operation without licensing from the relevant authorities by the time UMRA was created, and these are all over the country.
However, the regulator says that they are ready to take them on through countrywide operations, while they are also establishing regional offices. UMRA Executive Director, Edith Tusuubira says they are launching impromptu or spot checks, which could result in arrest, prosecution or even closure of businesses, urging all defaulting operators to update their compliance statuses.
On the persistent complaints of overcharging for loans, and continued deductions of client’s money, UMRA says that while some microfinance institutions or moneylenders violate the rules, there are some people who intentionally refuse or avoid paying back. Nelson Mutatina, the Director Supervision at UMRA says the growing institutions also have to be protected against such if they are to succeed.
According to the laws, Tier 4 was purposely established to protect consumers from the exorbitant interest rates set by the money lenders as well as their illegal modes of transacting businesses.
Currently, the money lenders set their own interest rates, until the Minister is empowered through the Act to prescribe the maximum interest rate which a money lender is to charge. For this reason, money lenders are charging rates which the regulator admits are exorbitant. However, the most exploited category of borrowers is the ‘payroll borrowers’ or salary earners.
While the lenders connive with the employers to continue deducting salaries, UMRA says there are also workers who connive with employers to be removed from the payroll for some time, to avoid paying.
However, investigations later find the borrower at fault when cases come up, and this has been mainly the cause of conflicts at Platinum Credit, which faces losing its license. Mutatiina says all cases are therefore handled individually.
UMRA says there is now a high demand for microloans as people try to find means of surviving or lifting themselves up from the economic situation that has resulted from the Covid-19 induced lockdowns. Lenders will therefore take advantage to exploit the borrowers who are highly in need of money.
The legal officer Sheila Birungi urged the borrowers to always read the agreements to the dot before signing for the money, because this is where most of the problems begin.