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Government lifts ban on salary loans

By Vision Reporter

Added 3rd August 2014 09:25 PM

The Government has allowed financial institutions to resume giving salary loans to civil servants.

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By Vision Reporter

KAMPALA - The Government has allowed financial institutions to resume giving salary loans to civil servants.

Last month, the Government stopped guaranteeing public officers’ salary loans from financial institutions.

But in a July 23 letter to all accounting officers, the secretary to the treasury, Keith Muhakanizi, announced a revision of the policy. He listed seven guidelines which accounting officers and financial institutions must follow.

According to the circular, the first guideline states that the monthly salary deductions should not exceed 50% of the borrower’s net pay.

Saturday Vision has learnt that due to multiple borrowing, some public officers were getting less than 10% of their monthly net pay, after the loan deductions were made.

“The control enforcing a maximum of 50% for payroll deductions per individual will be activated on the integrated personnel and payroll system,” Muhakanizi said.

This financial year, he said, the Government and financial institutions would work out the most efficient mechanism of managing loan deductions.

The spokesperson of Uganda National Teachers’ Union (UNATU), James Tweheyo, welcomed the revision, describing it as a relief not only for teachers, but also other public officers.

“The revision of the policy means a lot to us. Most public officers survive on loans,” Tweheyo said.

The Ministry of Finance had earlier noted that huge deductions by financial institutions had affected the families of public servants.
 

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UNATU spokesman, James Tweheyo, welcomed the revision, describing it as a relief


Muhakanizi said the move to lift the ban followed consultations between his ministry and stakeholders, who raised a number of concerns on the implications of the policy shift.

The chairperson of the Uganda Consumers Lenders Association (UCLA), Tom Ouma, told Saturday Vision that among the concerns they raised was that the policy would affect businesses and threaten the livelihood of over 6,000 employees in the sector.

He added that it also threatened the livelihood of 180,000 public officers, who had been securing regular loans from financial institutions.

Saturday Vision learnt that financial institutions, under UCLA, had a capital base of about sh700b, whose profitability the new policy would significantly effect.

On July 5, Saturday Vision ran a lead story about the policy shift. The story quoted Ministry of Finance officials, saying it was introduced to stop mismanagement of the loan codes by financial institutions.

An earlier circular from the finance ministry indicated that some financial institutions were deducting money from salaries of public officers who had not applied for loans.

Ouma said he did not think anybody in the sector would tamper with the codes. “But sometime back, there was a system error which was eventually rectified,” he said.


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