Think before you borrow

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OPINION

By Joshua Kato, CA.

Once upon a time, money was scarce, and borrowing carried shame; families whispered about the relative who sold land or mortgaged goats just to repay a lender. Today, borrowing has been dressed in shiny clothes, so convenient, so fast, and so digital that people embrace debt as casually as buying roasted maize on the roadside. Yet beneath this comfort lies a silent burden, quietly tearing through households, associations, friendships, and businesses across Uganda.

Decades ago, wealth grew slowly. People worked, saved, and waited patiently before buying a cow, building a house, or throwing a wedding. Now, it seems just a tap away. A mobile notification blinks: “Congratulations, your loan has been approved!” Money arrives instantly, no queues, no paperwork, no delays. For a moment, it feels like magic. But magic has a price. Behind the glitter of “quick loans” lurk interest rates that can exceed 100% annually, unlicensed credit apps spreading like wildfire, and loan sharks waiting in the shadows. Convenience has quietly transformed into chains of debt.

Consider a true story about Ronald, a university student in Mbarara. He borrowed sh150,000 from a moneylender to impress friends at a birthday party. With 20% monthly interest and no steady income, he defaulted within two months. The lender stormed his parents’ home, demanding repayment. His father had to sell goats to clear the debt, and Ronald admits, shaking his head, “It was just one party, but it cost me my father’s trust. I wish I had never borrowed.”

Debt does more than strain wallets; it breaks lives. Families sell land, lose cattle, or pull children out of school to cover unpaid loans. Friendships and community trust crumble. People avoid calls, disappear from WhatsApp groups, and even SACCOs and burial groups falter when members default. A 2022 Financial Consumer Protection Survey by FSD Uganda found that 61% of digital loan users borrowed to cover daily consumption rather than investment, creating a vicious cycle of dependency.

In recent months, I have met countless friends, family and individuals lamenting loans from mobile apps, banks, SACCOs, moneylenders, and even friends. Their stories repeat themselves: money borrowed in excitement or desperation, quickly spent on consumption rather than investment, followed by endless stress as repayments spiral out of control.

The convenience of digital loans today is unmatched. Under Kampala’s orange streetlights, Kanyijuka taps “accept” on a mobile loan app offering sh200,000. It promises groceries, transport, or airtime—but by early morning, hidden fees and interest have piled up, almost doubling what she borrowed. She lies awake, wondering how to repay. Across Uganda, millions face the same reality: easy money today, crushing debt tomorrow. Some live in fear of threats, insults, and public shaming from loan sharks.

We borrow for weddings, parties, gadgets, even daily needs—rarely for investment or growth. The mushrooming of these mobile apps loan providers has cultivated a culture of instant gratification over long-term stability.

Borrowing is not inherently wrong. The problem lies in mindset and procedure. A disciplined borrower asks the right questions, chooses safe sources, and borrows for meaningful reasons. As a generation, we must pause before signing loan agreements or tapping “borrow now.” The fairytale of borrowing can end well, but only if we remember that not every glittering loan offer is gold.

Here lies the paradox: the very convenience that makes borrowing so easy is often the most expensive. The cost of convenience is discomfort. That quick mobile loan, obtained at the touch of a button, may later demand double or triple repayment, along with sleepless nights and strained relationships.

Therefore, financial knowledge is no longer optional. It is a survival skill! A wisely managed loan can build a house, grow a business, or fund an education. Licensed commercial banks and regulated institutions typically offer annual interest rates between 15% and 25%, depending on the facility. Compare that to unlicensed moneylenders and digital loan apps charging 10%–30% per month, translating into over 100% annually. The difference is not just numbers; it is the line between growth and financial slavery.

The bitter reality is that most loans are spent on consumption rather than investment. Parties, lifestyle upgrades, and daily expenses deplete borrowed money, leaving households burdened with repayment. In Uganda today, borrowing—from mobile apps, SACCOs, banks, and moneylenders, both licensed and unlicensed is common, yet not all loans are equal. Under Legal Notice No. 21 of 2024, Tier 4 moneylenders are capped at 2.8% monthly interest (around 33.6% annually), while unlicensed lenders continue to demand 10%–30% per month, often with hidden fees, aggressive repayment terms, and unethical tactics.

According to the 2023 FinScope Uganda survey, over 51% of adults (12.5 million people) borrowed in the past five years, with roughly 32% using formal channels such as mobile money and SACCOs. By September 2023, UMRA had licensed 1,302 moneylenders serving 2.5 million customers with a sh1.2 trillion loan portfolio. Yet, more than 1,000 illegal lenders operate outside regulation, and in August 2024, the government identified 59 illegal online loan apps exploiting Ugandans without consumer protection.

Borrowing itself is not a sin. It can be a bridge to growth, but discipline is essential. Every borrower should first ask: Is it important? Loans for emergencies, education, or investment are justifiable; loans for parties or gadgets are not. Then, is it necessary? Can the need be met through savings, reducing non-essential spending, or family support? Is it urgent? True emergencies justify quick access, but many borrowers succumb to poor planning and predatory lenders.

Next, consider: What is the cost of this loan? Interest is only the start. Hidden fees, penalties, and insurance charges can inflate repayments, making a seemingly small loan unmanageable. A careful repayment plan aligned with predictable income, salary, business revenue, or harvest prevents debt from becoming a trap. Finally, understand the consequences of default: damage to reputation, strained relationships, and property loss are real risks.

The choice of lender determines whether debt becomes a burden or a blessing. Licensed banks, regulated SACCOs, and Tier 4 moneylenders under UMRA supervision offer transparency, legal protection, and fair repayment structures. Unregulated moneylenders and mobile apps exploit desperation, charging over 100% annually, often with hidden fees and aggressive tactics.

Borrowing should fund productive purposes. Loans that generate income, such as buying farming inputs, expanding a retail shop, or acquiring a boda-boda, can repay themselves. Loans for luxuries, celebrations, or lifestyle maintenance rarely provide returns and often create long-term financial stress.

Scenario A: The Well-Planned Borrower

Huzaifa, a small business owner, needs sh10 million to stock his shop. He compares two options: a licensed Tier 4 moneylender charging 2.8% per month over 12 months, and an unlicensed app offering instant cash at 15% monthly interest with hidden fees and threats. Joseph chooses the licensed lender, budgets carefully, ensures sales cover repayment, and completes payments on time. He maintains dignity, builds trust, and strengthens his credit record.

Scenario B: The Trap of Convenience

Oprah borrows sh500,000 from a digital app for urgent medical bills, facing 15% monthly interest. Missing one payment triggers late fees, escalating interest, and harassment of relatives. Borrowing again to cover the first loan, she soon owes sh1.2 million. The stress affects her mental health, relationships, and overall well-being.

Uganda’s government and regulators are aware of predatory lending and have taken steps: capping Tier 4 moneylender rates at 2.8% per month, identifying 59 illegal online loan apps, and recovering national IDs seized by lenders. President Museveni has condemned extortionate rates exceeding 240% annually, especially in rural areas. Yet enforcement remains challenging, as many lenders operate clandestinely, while borrowers often lack awareness or fear speaking out.

The fairytale of easy borrowing can end two ways: happily, with loans growing businesses and families, or tragically, with assets seized and households in tears. Convenience is not always good; sometimes, it is the poison that kills slowly. The real cost of financial indiscipline is not just money; it is dignity, trust, and peace of mind.

The principle is simple: if the loan does not create value greater than its cost, it is not worth taking. If the loan acquired doesn’t adequately cover your needs or generate benefits, it’s better to avoid it. Borrow wisely, and let every borrowed shilling work for growth, not stress.

The writer is a Chartered Accountant and a Chartered Tax Advisor