Uganda’s Parliament has passed a contentious new law that seeks to give the Finance Minister authority to cap interest rates for moneylenders, igniting strong opposition from the Uganda Moneylenders’
Association.
The Tier 4 Microfinance Institutions and Money Lenders Bill, 2024, aims to protect borrowers from exorbitant interest rates that currently reach up to 120% annually, compared to commercial banks’ 18.3%.
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Ben Kavuya, chairperson of the Uganda Money Lenders’ Association, argues the regulation threatens their business model, which relies on self-raised capital unlike deposit-taking institutions.
However, State Minister of Finance Amos Lugolobi defends the reform, citing widespread predatory lending practices. The law will affect 1,802 licensed institutions, including 1,402 moneylenders, regulated by the Uganda Microfinance Regulatory Authority.
The minister must issue the first interest rate cap notice within 60 days of enactment, marking a significant shift in Uganda’s financial services regulation despite its liberalized economy.
Is capping interest rates a protective measure against predatory lending, or does it risk stifling the very financial
services that vulnerable borrowers rely on?