The Uganda Microfinance Regulatory Authority (UMRA) is advocating for significant changes in the conventional loan structures employed by money lenders, aiming to introduce caps on interest rates among other alterations. These proposed amendments are integral parts of the broader revisions intended for the Microfinance laws and regulations.
Edith Namugga, UMRA’s Executive Director, emphasized the authority’s role in ensuring order and coherence within the tier 4 microfinance sector across the nation. Addressing money lenders in Kampala, she highlighted the persistent grievances lodged by the public against certain money lending practices, prompting the necessity for legal amendments.
The existing regulatory framework governing tier 4 financial institutions has been operational for over five years. However, Namugga underscores the need for enhancements in these regulations to better serve the industry’s needs.
One significant measure involves the invocation of section 90 of the law, which authorizes the Minister of Finance, also the President, to impose a cap on the interest rates of money lenders’ loan facilities. However, Namugga deems this action inappropriate for ensuring market stability and instead proposes alternative measures.
To foster confidence, responsible lending behavior, and market stability without resorting to interest rate capping, UMRA intends to leverage section 112 of the Act. This provision empowers the Minister to formulate regulations for the effective implementation of the Act’s provisions, including lending conditions, through extensive stakeholder consultations.
In a bid to enhance transparency and empower borrowers, UMRA plans to establish a “loan shop.” This platform will publicly display the interest rates offered by various lending institutions, enabling borrowers to make informed decisions regarding their borrowing preferences and loan durations.
Namugga clarified that UMRA’s objective isn’t to dictate interest rates but rather to promote transparency. Additionally, UMRA advocates for limiting short-term loans to a maximum duration of six months to safeguard the interests of both lenders and borrowers.
Expressing the borrowers’ perspective, Norbert Mugisha from Kolar Africa Limited stressed the importance of fostering a mutually beneficial relationship between lenders and borrowers. He acknowledged the potential benefits of restricting short-term credit facilities to six months but cautioned against potential adverse effects on lenders reliant on bank loans for capital, which could inadvertently impact borrowers.
UMRA’s proposed reforms aim to instill transparency, stability, and fairness in money lending practices, striving to strike a balance between the interests of lenders and borrowers for a well-regulated microfinance sector in Uganda.
| UMRA’s Proposed Reforms in Money Lenders’ Loan Terms |
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| Key Points |
| – UMRA suggests amendments to introduce caps on interest rates for money lenders’ loans. |
| – The regulatory authority aims to enhance market stability and transparency within the microfinance sector. |
| – UMRA plans to establish a “loan shop” to publicly display interest rates offered by various institutions. |
| – Short term loans are proposed to have a maximum duration of six months to protect both lenders and borrowers. |
