Kampala, Uganda | THE BLACK EXAMINER | Money lenders and microfinance institutions have been counseled to employ lawful methods in their business operations rather than resorting to the use of force, particularly when recovering funds.

This advice comes at a time when small-scale lenders are grappling with recent directives from industry regulators and the President regarding collateral and loan recovery, issues that have sparked conflicts and occasional violence.

In September, President Yoweri Museveni questioned the permissibility of lenders charging “20 percent interest per month,” equivalent to 240 percent annually.

Addressing the Microfinance and Saccos Governance Forum launch in Kampala, some borrowers expressed bewilderment at the lack of implementation of the President’s directive, given the persistently high interest rates.

Sheila Birungi, Head of the Legal Department at the Uganda Microfinance Regulatory Authority (UMRA), revealed that some lenders have been known to charge as much as 50 percent monthly, translating to an annual rate of 600 percent.

While sector regulators and the government work on a solution, Birungi emphasized that, under Uganda’s economic liberalization policy, lenders cannot be prevented from determining the cost of their services.

Despite recent parliamentary rejection of interest rate caps, she stated that as an internal solution, UMRA will withhold licenses from applicants intending to impose exorbitant interest rates. She argued that imposing a cap would be discriminatory unless applied uniformly across the financial industry.

Addressing concerns raised by lenders at a forum organized by the Uganda Institute of Banking and Financial Services (UIBFS), President Museveni directed that no one should be forcibly evicted from their homes due to loan default.

Lenders at the event questioned the course of action for customers who pledged their houses or homes as collateral and subsequently defaulted. Some claimed that certain borrowers are exploiting the president’s directive to avoid repayment.

Birungi recommended that if a home was pledged in the contract, the lender should obtain a court order to enforce the agreement in such cases.

The forum, themed “Strengthening Governance Practices for Growth and Sustainability,” emphasized the shift from profit-centric to governance-centric sustainability. Goretti Masadde, CEO of UIBFS, emphasized the importance of environmental, social, and corporate governance (ESG) in business operations, urging lenders to embrace these principles for long-term sustainability.

Dison Okumu, CEO of the Uganda Institute of Corporate Governance, advised SACCO and MFI leaders to focus on establishing structures that foster public trust. He emphasized that compliance with laws and regulations alone is insufficient for sustainability, stressing the need for people-focused organizational structures.