(Kampala) – The Ugandan government has set a maximum interest rate for moneylenders to curb exploitative practices targeting individuals in financial distress.
Finance Minister Matia Kasaija announced the new interest rate cap of 2.8% per month, equivalent to 33.6% annually, through a legal notice published on November 15, 2024. The measure is part of efforts to regulate the moneylending sector and protect borrowers.
This action is based on Section 89(1) of the Tier 4 Microfinance Institutions and Money Lenders Act, following amendments passed on November 6, 2024. The amendment also dissolved the Uganda Microfinance Regulatory Authority, transferring its functions to the Ministry of Finance to streamline operations and reduce administrative costs.
The announcement addresses growing concerns about unscrupulous moneylenders who have charged exorbitant interest rates and engaged in practices such as disappearing when borrowers attempt to repay loans or seizing properties used as collateral.
President Yoweri Museveni had earlier directed Minister Kasaija to operationalize Section 90 of the Tier 4 Act, citing the harmful effects of moneylender practices, including driving some young people to suicide.
At a meeting with the ruling party’s Parliamentary Caucus on September 28, 2023, Museveni criticized moneylenders for their role in exploiting vulnerable individuals, stating:
“These moneylenders who are causing suicide among our young people—who allows them to operate? I wanted to cancel all the loans of the moneylenders.”
The new law aims to offer relief to borrowers and regulate the industry to prevent abusive lending practices while ensuring fair access to credit.
| Key Features of the New Regulation | Details |
|---|---|
| Maximum Monthly Interest Rate | 2.8% |
| Maximum Annual Interest Rate | 33.6% |
| Legal Basis | Section 89(1) of Tier 4 Act |
| Effective Date of Regulation | November 15, 2024 |
| Former Regulatory Body Dissolved | Uganda Microfinance Regulatory Authority |
| Functions Transferred To | Ministry of Finance |
Background on Moneylender Practices
Many moneylenders have been accused of taking advantage of desperate borrowers by offering high-interest loans and then engaging in deceitful practices. Borrowers often lose property put up as collateral due to hidden terms or aggressive seizures.
The newly established rate cap seeks to strike a balance between ensuring access to small loans and protecting borrowers from financial exploitation.
Significance for Borrowers
The cap is expected to provide relief for Ugandans who rely on moneylenders for emergency funds, reducing the financial burden and risk of losing personal property due to excessive interest rates or predatory behavior.
