money lending article

Guma Davis Banda, the Managing Director and an Advocate of Guma & Co Advocates told The Independent that the provisions in the Act are as good as nothing since none of them today applies. "The ministry of Finance needs to urgently draw up guidelines to monitor the operations of money lenders," he said.

Already, Bank of Uganda (BoU) is working on a new regulation; the Consumer Protection Mechanism (CPM) to protect borrowers from being cheated or exploited by money lenders.

Robert Mbabazize, BoU's Assistant Director Financial Stability, says as of now however, the central bank has no mandate to regulate money lenders. It only deals with commercial banks and other microfinance institutions.

Another way out would be for commercial banks and microfinance institutions to embrace new technologies, like mobile banking, that move credit to customers far away from formal lending institutions and speed up the borrowing process.

BoU's Deputy Governor Louis Kasekende, made this point at the annual conference of the Association of Microfinance Institutions in May. He blamed the reliance on money lenders for quick money on two problems; the large segment of the population that persists outside the formal banking sector and the sectors failure to provide innovative products fit for the purpose.

He said only 26 per cent of the adult population above the age of 16 have ever used the formal banking sector like commercial banks, credit institutions and microfinance deposit taking institutions (MDIs).

He said, however, even those Ugandans with bank accounts take loans from informal credit institutions or individuals because bank loans are inaccessible and have lots of red tape. A senior official of one of the commercial banks conceded that the strict rules and procedures that commercial banks demand from customers to get a loan could be helping informal lenders to take off.

"You need to be a customer having an account with us in order to access a loan. You also need to be with business alongside security which would pay back the loan to us. If you don't have the above we advise you to get them and be served," the official said. That needs to change, because as everyone knows, all of us at one point might need to borrow money quickly. We should be able to get it safely from our bank and not be left at the mercy of a loan shark.