The Minister of Finance, Planning, and Economic Development, Matia Kasaija, has ordered all the money lenders to charge a 2.8% monthly interest rate on all loans extended to their customers.
The directive is in accordance with section 89(1) of the Tier 4 Microfinance Institutions and Money Lenders Act, which states that the maximum interest rate that a money lender shall charge on the principal or the actual sum of the money advanced as a loan to a borrower is two point eight percent (2.8%) per month or thirty-three point six percent (33.6) per annum.
“In exercise of the powers conferred upon the minister responsible for finance by section 89(1) of the Tier 4 Microfinance Institutions and Money Lenders Authority, this notice is issued,’’ a notice issued out by Minister Kasaijja read.
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This followed public outcry over the exorbitant, unregulated interest rates that seem to be aiming at confiscating people’s assets.
Also, the directive aims to protect consumers from predatory lending practices and ensure that borrowing remains accessible and fair. By establishing a clear interest rate cap, the government seeks to foster a more equitable and fair financial environment for individuals seeking loans.
However, John Marry Kisembo, a renowned money lender in Kampala, is doubting whether the minister’s directive will be applicable, since setting a maximum interest rate can create black market loans in the lending market/industry. Where unregulated lenders will charge higher rates, further exposing borrowers who are unable to secure loans through legitimate money lenders who are following the directive.
