Government Puts Standard Borrowing Rates For Money Lenders

The government of Uganda has issued new regulations limiting the interest rates that Tier 4 microfinance institutions and money lenders can charge borrowers.

 In a legal notice published on November 15, 2024, Finance Minister Matia Kasaija announced that the maximum interest rate on loans will now be 2.8% per month or 33.6% per annum.

The measure, issued under Section 89(1) of the Tier 4 Microfinance Institutions and Money Lenders Act, Cap. 61, aims to protect borrowers from exploitative lending practices. For years, many money lenders have been charging borrowers exorbitant rates, often exceeding 100% per annum, trapping individuals in a cycle of debt.

 “This notice may be cited as the Tier 4 Microfinance Institutions and Money Lenders (Prescription of Maximum Interest Rate) Notice, 2024,” the document reads. Kasaija says the directive was developed in consultation with the Uganda Microfinance Regulatory Authority and is intended to provide relief to borrowers who often face exorbitant rates in the informal lending sector. Minister Kasaija emphasized that the regulation is legally binding and takes effect immediately.

 The move is expected to promote fair lending practices while ensuring that borrowers can access credit without being overburdened by excessive interest.

 The crackdown on money lenders in Uganda comes after years of complaints about exorbitant interest rates that have left borrowers in financial distress. It should be noted that President Yoweri Museveni had raised concerns over money lenders and promised to act. Museveni highlighted this issue, describing the practices of some lenders as exploitative and harmful to Ugandans, especially young people. He directed the Ministry of Finance to cap interest rates and strengthen regulations to protect borrowers.

 Museveni has also urged for alternative financial services such as the Parish Development Model and community-based savings groups to offer affordable loans. He emphasized that reducing predatory lending practices is key to safeguarding Uganda’s economic growth and social stability​.