UMRA proposes new loan terms for money lenders

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The Uganda Microfinance Regulatory Authority (UMRA) is suggesting changes to the traditional money lenders’ loan structures. Among these changes is a proposal to cap interest rates charged by money lenders.

The Ugandan government capped the maximum interest rate that money lenders can charge at 2.8% per month (33.6% annually) under Legal Notice No. 21 of 2024, aiming to protect borrowers from predatory lending.

Addressing journalists after an engagement with digital financial stakeholders on March 6, 2025, at Protea Hotel in Kampala, Rachel Vanessa Muhwezi, manager of microfinance institutions at UMRA, underscored the need to regulate money lenders.

“As regulators, we are mandated to ensure that there is sanity and order in the Tier 4 microfinance sector in the country. To this end, we have continued to receive complaints from the public about some money lenders, and we thought it wise to make amendments to the current law,” Muhwezi said.

The Tier 4 financial institutions governing law has been in place for over six years. Muhwezi says regulations need to be improved.

Muhwezi revealed that the authority is introducing a “loan shop” where interest rates of various institutions will be displayed for borrowers to compare and decide who to borrow from, as well as determine the loan period.

"We are not coming to announce any interest rates. Instead, what we are planning to do is introduce a loan shop where all interest rates will be displayed, and Ugandans will know which interest rate is prevailing or better. We are also emphasizing that all short-term loans must not exceed six months in order to protect both the lender and the borrowers,” she said.

On behalf of the borrowers, Allan Abaho, head of business at Ebo Financial Services, said that as UMRA introduces new regulations, it should consider creating a win-win situation for both lenders and borrowers, which is the only way the market can remain stable and organized.

According to Abaho, a short-term credit facility not exceeding six months wouldn’t be a bad idea. However, it could affect businesses, especially for lenders who also depend on bank loans for capital, ultimately shifting the burden to borrowers.

(Photo by Nancy Nanyonga)

Background

In Uganda, the Tier 4 Microfinance Institutions and Money Lenders Act of 2016 regulates money lending businesses, establishing the Uganda Microfinance Regulatory Authority (UMRA) to license, regulate, and supervise them.

The Tier 4 Microfinance Institutions and Money Lenders Act 2016 was enacted to provide, in part, for the management and control of money lending businesses. The Act repealed the Money Lenders Act Cap 273, which required money lenders to apply for a Money Lending License from the Chief Magistrate's Court.