Uganda’s natural beauty usually steals the spotlight even though the country’s money lending business is critical to its citizens.
However, the business of Money Lending had been misused in Uganda. This is because borrowers were required to sign sale agreements and transfer documents in the lender’s favor as security for credit access.
As a result, money lenders ended up with the securities pledged for the money borrowed, and interest rates were excessive, while also raised regularly.
The banks’ excessive lending rates and the erroneous process of obtaining credit from them when it is desperately required were the key issues that commonly pushed customers down this route of disappointment.
These challenges were further worsened by the lack of direct monitoring of the money-lending business.
It had previously been entrusted to magistrate’s courts, which gave licenses. However, they did not have the needed technical know-how to supervise money lending operations.
This in turn exposed moneylenders to dishonest borrowers who offered difficult minimal security and were even hesitant to pay.
Furthermore, it exposed the borrowers to the whims of money lenders who were primarily interested in seizing securities rather than their money.
The money lenders that achieve a balance between profitability and manageable risk levels, great client service, and regulatory compliance will thrive in this emerging sector.
As Uganda’s financial services industry innovates and evolves, there is potential for profitable money-lending enterprises to emerge.
In this article, we will set out to investigate facts about the money lending business in Uganda.
These facts, which range from regulatory oversight to changing market dynamics, demonstrate the importance of money lenders in the financial stability and economic development of Uganda.
Read also on The Requirements of Starting a Money Lending Business in Uganda
Facts about Tier 4 Microfinance Institutions and Money Lenders Act 2016
The Tier 4 Microfinance Institutions and Money Lenders Act 2016 was passed at the right time to address various areas of money lending company management and control.
The Money Lenders Act Cap 273, which required money lenders to apply to the Chief Magistrate’s court for a Money Lending Licence, is also repealed by the Act.
The Uganda Microfinance Regulatory Authority (“the Authority”) is thus established under section 6 of the Act as a body corporate with perpetual succession and a common seal.
It is therefore equipped with the responsibility of overseeing and regulating the Ugandan money lending industry.
The Authority’s duties include:
- Granting, renewing, and revoking money lending licenses.
- Maintaining a register of money lenders.
- Educating the public about the money lending industry.
- Inspecting and examining books of accounts, records, returns, and other documents and even business premises.
- Conducting investigations into the money lending industry.
Among the facts about the money lending business in Uganda is that it is the only business activity permissible for a private corporation created under Ugandan law.
As a result, a lending business cannot be run by a single individual. However, this does not exclude a private individual from lending money to another person on friendly terms.
This type of friendly money loan is not undertaken for profit. Therefore, it is legal and is not subject to the authority of the Act or the Authority.
Read also on How to Get a Business Loan in Uganda
Facts about Money Lending Licence
Money lending license applications must be submitted in writing to the Authority. The application should also be attached with:
- The company’s certificate of incorporation,
- Director and secretary details,
- A resolution providing the secretary’s data,
- The company’s physical and postal addresses,
- The application fees.
The authority has three months after receiving an application to evaluate it. After which they will determine if the applicant meets the conditions, and then give the applicant a license.
It is also important to note that every given license expires on December 31st of each year and must include the name and address of the moneylender under whom they are authorized to conduct business. It also forbids moneylenders from using more than one name.
However, if the applicant of the company’s management is found guilty of a crime involving embezzlement and has disregarded Act requirements, the Authority may refuse to grant a license for money lending.
For the Authority to be able to refuse licenses based on an individual’s criminal past, the following parties must be in sync:
- Information management systems.
- The National Identification and Registration Authority.
- Security systems.
- The law courts.
The Authority also has access to the judiciary’s records, which must be kept up to date.
Many questions have been raised on whether the authorities take into consideration the fact that people may change and reform.
Unfortunately, this is likely to turn spiteful in the sense that people who have completed their time and turned their lives around will still be held accountable and even denied opportunities due to their past.
Read also on How to Get a Money Lending License in Uganda.
Facts about Money Lending Contracts
To address inequities and extortionist contracts, the Act under section 85 provides a form of money loan contract.
A written loan agreement must be signed by both the borrower and the money lender, and it must also be certified by a third party.
The money lending contract must include the following information:
- The date the loan is disbursed.
- The principal amount.
- The annual interest rate.
- The type of security.
- The borrower’s duties and obligations.
- The mode of repayment.
- The nature of any guarantors.
- The mode of right to early repayment.
Furthermore, the Act bans the use of compounds and default-related limitations.
The contract is considered illegal If it requires compound interest, and raises the rate and amount of interest due to nonpayment of monies due under the contract.
Therefore, a lender may charge just simple interest on the amount outstanding from the date of default until full payment is received.
Read also on Money Lending Business Plan in Uganda.
Facts about Interest Rates
After consulting with the necessary authorities, the minister may determine the maximum interest rate that a money lender may charge by notice published in the Gazette.
However, a money lender who is found guilty of collecting interest at a rate higher than the maximum authorized by law faces a punishment of up to fifty currency points.
The court may also order the money lender’s license to be revoked. As a result, they will be required to refund the borrower for any extra monies gained due to the interest rate they charged.
Facts about Receipts
Money lenders are required to keep a record of receipts that contains the following information:
- Date the loan was disbursed.
- The original loan amount.
- The interest rate.
- The amount repaid on the loan.
- The date the repayment is made.
Additionally, money lenders must provide borrowers with receipts for each timely loan repayment.
Facts about Confidentiality and non-disclosure
The money lender is expected to keep the information given by the borrower strictly confidential.
However, If the borrower has not provided any written consent, the money lender may not disclose the information to a third party. Not unless it is required for the prevention of any criminal behavior.
Additionally, the borrower reserves the right to get information from the money lender on loan transactions. They include:
- The remaining principal balances
- Interest that must be paid
- Payments that have been reinstated by the money lender regarding the loan with the dates they were received.
Facts about Marketing Your Money Lending Business
An effective marketing plan is required for money lenders to reach their target client segments and publicize their lending services.
Determine the priority of your target market by:
- Income levels.
- Geographical locations.
- Borrowing requirements such as financing for small firms, emergency needs, and so on.
- Offering financing alternatives that are customized to their needs.
- Concentrate on the client groups that best meet your needs.
Wrap Up!
The application and execution of these facts about the money lending business in Uganda are now clear to you. It remains to be seen how this will influence your money-lending business.
These facts enable for accurate recording of moneylenders’ financial activities, and how the money-lending business would enter the formal financial system.
They are also critical given recent terrorist incidents and worldwide money-laundering efforts.
The regulatory framework’s purpose is to bring better structure and transparency to the sector. Respecting established norms will lend credibility. When rules change, it’s important to be aware and comply to avoid bad blood with the authorities.
Finally, You should know that the Consumer Protection Guidelines of the Bank of Uganda is striving to protect many financial service customers against abuse.
Read also:
How to market a Money Lending Business in Ghana.
