Kampala, Uganda; The Money Lenders Association of Uganda (MLAU) has called on the government to monitor economic activity closely during the festive season and reconsider the recent policy capping lending rates.

MLAU, a group of legitimate and ethical money lenders registered with the Uganda Microfinance Regulatory Authority (UMRA), emphasized the need for open dialogue to address the implications of the new policy.

Legal Notice No. 21 of 2024, issued by the Minister of Finance, Planning, and Economic Development, Hon. Matia Kasaija, caps the maximum interest money lenders can charge at 2.8% per month or 33.6% annually. While intended to regulate the sector and protect borrowers, economists and business leaders warn that the move could inadvertently stifle economic activity and push lending operations underground, posing higher risks for borrowers.

Jonan Kandwanaho, Chairperson of MLAU, highlighted the potential challenges posed by the capped rates, particularly during the Christmas season, which typically sees increased borrowing as businesses and individuals prepare for year-end expenditures and upcoming school fees.

“This policy, introduced on short notice, could lead to reduced lending activity, negatively affecting businesses and the broader economy. The government will also feel the impact through reduced tax revenue,” Mr. Kandwanaho said.

He added that MLAU plays a vital role in Uganda’s financial ecosystem, particularly for those unable to access traditional banking services. Members provide essential credit to small businesses, farmers, market vendors, and transport operators.

UMRA reported that as of September 2023, the sector had 1,302 licensed money lenders serving 2.5 million customers, with an outstanding portfolio of UGX 1.2 trillion.

“These figures show our significant contribution to Uganda’s economy. From farmers buying seeds to shopkeepers stocking shelves, we provide crucial support that keeps commerce moving,” Mr. Kandwanaho noted.

He also stressed that MLAU’s quick loan processing and flexible terms are essential for supporting the country’s informal sector, which forms the backbone of the economy.

While MLAU remains committed to ethical lending, Mr. Kandwanaho acknowledged the presence of rogue actors within the sector. “We are willing to work with regulators to improve industry standards. We recognize the concerns that led to this policy and are committed to addressing them collaboratively,” he said.

The MLAU believes that constructive dialogue with the government and regulators can help refine the policy, safeguard financial inclusion, and sustain the sector’s critical contributions to Uganda’s economy.

“With cooperation and mutual understanding, we can improve industry integrity while continuing to serve Ugandans responsibly, especially during this critical Christmas season,” Mr. Kandwanaho concluded.

The MLAU’s call for action underscores the importance of balancing regulation with economic realities to ensure a secure financial future for Uganda.