By KT Reporter
This Wednesday, hundreds of money lenders from across Uganda converged at Kingdom Kampala for a meeting of some sort to reflect on the events of the past few days, which saw Finance Minister Matia Kasaija issue a regulation capping or limiting the monthly interest rate at which they lend money at 2.8%.
The Kasaija move was greeted with resentment and apprehension among the 1,800 registered and licensed money-lending companies and firms operating across the country.
Besides these, is another more than 60,000 money lending firms which operate underground and informally largely because they are unregistered and unlicensed yet they operate.
As of last year, the Ugandan money lending industry registered a combined turnover of Shs1.4trn. Money lending, outside commercial banks, has been booming because majority Ugandans, who resent banks, find them convenient to borrow from because they are quick and less bureaucratic.
It’s how a lot of importers get their consignments cleared by URA/customs authorities besides many Ugandan households who depend on these same money lenders to raise urgent money to respond to medical and funeral-related emergencies.
Some parents rely on money lenders to raise school fees which they never have at the time it’s required at the schools and academic institutions where their children access learning from.
So, the Kasaija move appalled not just the money lenders themselves but also the millions of Ugandan households and individuals who depend on them for their sustenance.
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After the consultative meeting at Kingdom Kampala, some of the leaders for the Money Lenders Association of Uganda spoke to reporters and explained a few things. These leaders included the Association’s Policy & Compliance Secretary Barata Kamugisha and Chairman Jonan Akandwanaho etc.
The two explained that it was strange that Matia Kasaija didn’t consult them and other stakeholders before enacting his regulation capping the interest rate at which they can lend at just 2.8%. The duo admitted that the Minister has powers under the law to do exactly that but ought to have consulted.
That if he had consulted, Kasaija would have established that the cash or capital which money lenders use to satisfy their customers is borrowed money from banks, which loan it to them at 3% per month.
They made it clear that you can’t obtain the capital to facilitate lending at 3% and viably lend it out to your borrowers, as a money lender, at just 2.8% yet you have other operating expenses to incur and cater for in order to keep your business running.
They also demanded to know why Kasaija only caps their lending rates without doing anything to banks yet some of them also charge high interest. In the interest of free market policies, which Uganda is supposed to pursue, the duo proposed that the GoU had better leave the market forces of demand and supply to determine the lending rates.
Akandwanaho asserted that actually what Kasaija should be doing to be even more effective as the Finance Minister is to lobby Cabinet and Parliament to strengthen the regulator UMRA, which is on the verge of being rationalized back to be under a Commissioner at the Finance Ministry.
Akandwanaho explained that actually government control over their lending rate is already provided for under the law since UMRA is permitted to deny a license to an intending money lender or applicant whose lending rate is disclosed to be too high. That its common for license and registration to be denied because the applicant or intending money lender intends to lend at very high interest.
The duo also demanded that the GoU should invest in strengthening UMRA to do it’s work as opposed to capping interest rate in such a discriminatory manner, which the Association members haven’t ruled out challenging in Court.
Akandwanaho wondered how, with just 35 employees, UMRA can effectively regulate and police the operations of the more than 1800 registered/licensed money lenders besides another 60,000 unregistered ones who are operating informally.
These are scattered across the country, including in areas where UMRA has no financial and human resources to reach. Akandwanaho suggested that the Finance Ministry works with their Association and other stakeholders to make the situation better for UMRA first before rushing to cap interest rates.
He said they are open to dialoguing with government first, to find common ground, before escalating matters to Court where Barata Kamugisha recalled the AG has twice been dragged before, regarding the GoU’s desire or attempt to cap interest rates for the commercial banks.
Akandwanaho predicted total chaos as the country counts down to Christmas as many businesses and consumers tend to thrive on borrowed money to their supply and demand-related obligations. He said that many who have been investing in money lending are mainly young people aged 29-30 years and are now pulling back from the business yet the demanding for money lending services can only grow.
He said that even several importers who have always relied on money lenders to make urgent tax payments, due to commercial banks bureaucracy, are also going to suffer.
He also expressed fear that the draconian and exclusionist criteria Matia Kasaija followed while enacting his regulation without consulting stakeholders, would hurt Uganda and diminish its reputation globally as a favorable investment destination.
He said processes are very important and any serious investor would avoid a country or an economy where laws are enacted abruptly without first consulting stakeholders concerned. The Association leaders suggested its not too late for the Finance Ministry to engage with them in order to de-escalate the situation.
It was also asserted that what UMRA and the Association need to do, going forward, is to engage in intensified sensitization so that adequate awareness is created among both money lenders and the public that borrows from them.
That some money lenders inadvertently complicate things for themselves by charging very high interest which pushes the borrower into default while at the same time increasing recovery costs on the lender.
That in most cases, lenders do this because they haven’t been sensitised to realise that its better to impose reasonable lending rates so as to diminish recovery costs which makes better business sense.
Going forward, Akandwanaho revealed that their Association is going to do more towards awareness creation among members of the borrowing public by publishing the list of the 1800 licensed lenders, their contacts, location and the rate at which they lend.
Akandwanaho said that they admit there are lots of bad apples out there who they are prepared to mitigate and expose while working closely with the Finance Ministry and UMRA, the regulator, which he implored government to capacitate through increased funding as opposed to rationalising the regulator into non-existence.
Saying that even in UK money lenders exist and are permitted to charge up to 0.8% per day on the money they lend out, Akandwanaho asserted that the “bridge financing” which money lenders offer is a necessary evil and there is no way the Ugandan economy can do without them.
He also expressed fear that the Matia Kasaija capping regulation will only push more money lenders into the informal space or black market, while reversing the financial inclusion-deepening gains the country had made over the years, as opposed to making things any better.
Both Akandwanaho and Kamugisha admitted to being aware that the Ugandan money lenders largely don’t have a good reputation but clarified that the solution lies somewhere else (namely government carrying out extensive consultations besides awareness creation) and not in capping interest rate at which money lenders lend out money. Give us feedback on this story through our email: kamwokyatimes@gmail.com
