Last week, the speaker of parliament, Anita Annet Among, issued a stern warning to moneylenders, threatening to cancel the Memorandums of understanding (MoU) signed between parliament and some moneylenders.
Her decision came in response to reports of moneylenders harassing members of parliament (MPs) with exorbitant interest rates. Among expressed her concern over MPs frequently ending up in court due to these harsh conditions and demanded that the moneylenders behave appropriately.
“I am going to cancel those MOUs between those moneylenders and parliament, because I can’t afford having MPs every time in court. They must behave,” she said.
At least three legislators have faced the strict and unforgiving terms imposed by moneylenders. In previous parliaments, moneylenders signed MoUs with parliament, allowing MPs and staff members to borrow money with the assurance of repayment through the payroll. This practice was initiated by the current administration but has been observed in previous sessions as well.
Presently, parliament has arrange- ments with savings and credit cooperatives (SACCOs) and various banks that offer loans to MPs. Many MPs resort to taking loans to fund their election campaigns, and once elected, they pledge their salaries to borrow more money to protect their mortgaged properties.
Additionally, they often find themselves taking out new loans to service previous debts, leading to an overwhelming burden of constituency needs and financial commitments.
Given their relatively low salaries, these loan obligations have put immense pressure on MPs, some of whom have been forced to seek refuge in parliament premises late into the night to avoid confrontations with angry creditors.
In Uganda, moneylenders fall under the regulation of the Uganda Microfinance Regulatory Authority (UMRA), operating according to the Tier IV Microfinance Institutions and Moneylenders Act. The law governs the licensing and management of tier four microfinance institutions and money lenders.
Moneylenders are regulated by Uganda Microfinance Regulatory Authority (UMRA) which derives its powers from 2016 Tier IV Microfinance Institutions and Moneylenders Act. The law provides for licensing and management of tier four microfinance institutions, licensing of money lenders and others.
According to the UMRA website, the interest rate for people acquiring loans from especially moneylenders and commercial banks is open. It is at the discretion of the moneylender to decide how much interest he will charge his customers.
According to the latest data published monthly by Bank of Uganda, the interest rate in Uganda remains unchanged at 10% in July 2023. The maximum level was 23% and minimum was 6.5%.
The Bank of Uganda State of the Economy Report April 2023 indicates that the lending rates by the commercial banks have steadily increased to 19.2% in the three months to March 2023 from 18.4 percent in October 2022.
But moneylenders insist that there is no official rate imposed on customers across the country. Moneylenders determine the interest rates at their discretion, often adjusting the rates based on the amount borrowed, negotiation skills, and the agreed repayment period.
Interest rates can vary significantly, and additional interest may be charged on defaulted loans. Recent incidents have seen several MPs, including Davis Kamukama, Patrick Mutono, and Robert Mwesigwa Rukaari, arrested and taken to court for failing to repay their loans. Rukaari was charged with failure to pay a loan of Shs 700 million, while Kamukama owed Shs 69.1 million.
Dr. Mutono was also remanded for defaulting on a Shs 300 million loan. These cases highlight the severe consequences MPs may face due to their financial commitments.
Despite the challenges, some moneylenders argue that interest rates are determined based on borrowers’ qualifications and negotiating abilities. For instance, Unifi Uganda adjusts interest rates depending on the borrower’s qualifications, while Finca Uganda allows for different interest rates, depending on the credit officer’s decision.
Source; Observer UG