Ugandans have come up to say , money lenders are in their right to charge as they do given the convenience they bring to borrowers.
The defence came after His Excellence President Yoweri Kaguta Museveni issued a directive to the Minister of Finance to come up with a statutory regulatory instrument for the 20 percent interest rate money lenders impose on borrowed money .
“While chairing the NRM Caucus at Entebbe State House this afternoon, I directed the Minister for finance to put out a statutory instrument within two weeks on the interest paid to money lenders in accordance with the inflation which the NRM will support. These moneylenders who are causing suicide to our young people, who allows them to operate? Why should someone charge 20% interest on a loan per month? This must stop,” president Museveni posted.
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He intimated that the money lenders should be regulated to charge less.
On Tuesday morning however Jaffer Joel Aita, Chairperson Joadah Consult shared a post a via X expressing why the money lenders are a go to option despite their high interest rate .
In his post crafted as a letter to the president he listed seven points including easy accessibility to the service from money lenders compared to banks, quick speed for accessing the loan, lack of collateral requirement in some cases, informal economy in which most Ugandans are and lack of financial literacy.
He also argued that money lenders face a higher risk and default rates from borrowers. In addition, money lenders according to him are more preferred because they do not base on credit history as much as banks do .
Meanwhile experts also deliberated on the same noting that cutting the interest rates is not a solution, they noted that the root of the issue like lack of financial literacy amongst Ugandans and money lenders should be solved .
Allan Tayebwa, the Managing Director Goldmine Finance at an NTV show this morning said; “Capping interest rates can be a tricky endeavor. Instead, we should prioritize educating both money lenders and borrowers. People need to understand the appropriate sources for borrowing, and it’s easier to regulate interest rates at that level.”
Another Francis Muhire , an economist highlighted that banks have been equally exorbitant if thorough scrutiny with all money lending institutions was to be done.
“Before we scrutinize the money lenders, it’s essential to examine the commercial banks because they also impose high interest rates. We should inquire why commercial banks behave this way, as many of them seem more focused on serving the government sector than the general public.”
Money lenders have in the same vein petitioned the government to delay effecting this directive on grounds that they need to be heard on the matter first .
Tayebwa nevertheless revealed that money lenders amongst themselves have created a loophole where a number are operating illegally with no licence.
“UMRA has licensed fewer than 2,000 money lenders, while Kampala alone has over 20,000 money lenders. Our focus is on regulation and education because a significant number of these money lenders lack formal business knowledge. Many operate as briefcase companies without physical addresses and often engage in illegal practices such as faulty sales agreements due to their lack of awareness.”, he said .
The Uganda Microfinance Regulatory Authority which is charged with regulating interest rates of bodies including money lenders noted that they can only go as far as influencing but not direct control.
“Our role is to influence interest rates; we don’t have direct control over them. We advise the Ministry of Finance on interest rates and regulate money lenders, SACCOs, self-help groups, and microfinance institutions, mentioned Edith Tusuubira, the Executive Director UMRA.