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EXPLAINER: What the new loan interest rate cap means for Ugandans

Matooke Republic by Matooke Republic
November 19, 2024
in Business, Featured Stories
Reading Time: 3 mins read
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The government has introduced new rules to protect Ugandans from high-interest rates charged by moneylenders and microfinance institutions. Starting now, lenders can only charge a maximum of 2.8% per month or 33.6% per year on loans. Here’s what you need to know:

Why Was This Law Introduced?

The change comes after concerns that some moneylenders were charging extremely high interest rates—sometimes as high as 240% per year. These rates made it difficult for borrowers, especially small business owners, to repay loans, often causing them to lose valuable property.

President Museveni criticized these practices, calling them unfair and harmful to Uganda’s economy. To address this, the government passed the Tier 4 Microfinance Institutions and Money Lenders Bill 2024, which includes this interest rate cap.

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What Does the New Rule Say?

The law clearly states that:

  • Lenders can only charge up to 2.8% interest per month on the loan amount.
  • This equals 33.6% interest per year, no matter the size of the loan.

The rule applies to all microfinance institutions and moneylenders operating in Uganda.

How Does This Help Borrowers?

Protecting Borrowers: The capped rates will ensure borrowers, especially small business owners, are not overcharged.

Easier Repayment: With lower interest rates, borrowers are less likely to fall into debt traps or lose property due to loan default.

Encouraging Fairness: The law promotes responsible lending and borrowing practices across the country.

    Who Will Enforce This Law?

    The Uganda Microfinance Regulatory Authority (UMRA) is responsible for ensuring that all microfinance institutions and moneylenders follow the new rules. Lenders who fail to comply will face penalties as outlined in the law.

    What Should Borrowers Do?

    Check the Interest Rate: Before taking a loan, confirm that the lender is charging no more than 2.8% per month.

    Report Non-Compliant Lenders: If you come across lenders charging higher rates, report them to UMRA.

    Related

    Tags: Interest rateMoneylenderUganda Microfinance Regulatory Authority (UMRA)
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