Some sense of order will soon be enforced within the chaotic industry of moneylenders, where black market interest rates have seen defaulters go on the run with hired security operatives hot on their heels.

For an industry where defaulters’ collateral is sold on the cheap to recover debts, the latest announcement that all moneylenders will be registered in the next financial year comes with a sense of relief.

“There is need for partnerships to provide a variety of safe, sound and inclusive financial infrastructure and systems for Uganda citizens,” said Haruna Kasolo, the state minister for Microfinance. He was speaking during a recent stakeholders’ meeting for the microfinance CEO working group under the theme ‘Accelerating financial inclusion through partnerships’ at City Royal hotel in Bugolobi.

According to Kasolo, starting next financial year 2017/2018, all moneylenders will be required to register as a company and will be given a one-year license. The license will be revoked once the company violates the rules.

Moneylenders have thrived because of the ease at which they are willing to lend money. However, this ease has come with high interest rates of at least 15 per cent per month, borrowed with collateral.

The disputes among debtors and creditors within the money-lending business continue to tarnish the country’s financial industry. Uganda made tremendous strides towards increasing access to and usage of both formal and informal financial services with 85 per cent of Uganda’s adult population recorded as financially-included in 2013, up from 70 per cent in 2009, according to the Finscope III report [2013]

Uganda recently enacted the Financial Institutions Amendment Act 2016 to provide for agency banking, which will see units such as supermarkets, fuel stations, et cetera, act as agents for banks.

President Museveni signed into law the Tier 4 Microfinance Institutions and Money Lenders Act Uganda on July 5, 2016. This law provides for the establishment of the Uganda Microfinance Regulatory Authority, which will supervise moneylenders.

The authority will work with all partners including industry associations to regulate and develop microfinance with the view to salvage the reputational risk attached to Uganda’s microfinance industry. Experts hope that this will restore customer confidence in the industry.  

Museveni, in a statement, argued that the quest for financial inclusion should be complemented by safety and soundness to ensure that gains made through inclusion are not eroded by loss of savings or loss of confidence in financial institutions.

“Access to and use of finance remains a big strategic bottleneck in the country and it is the reason for underdevelopment of the banking sector,” he said.

New technology, especially in the area of electronic money transfer and agency banking, is designed to drive most of the future efforts aimed at financial inclusion.

“A lot of care must, therefore, be taken to build sufficient risk-mitigation and regulatory mechanisms that ensure safety of savers’ funds but at the same time promoting further advances to avoid stifling technological development,” Museveni added.

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