Gov’t warns money lenders against breaking the law
KAMPALA, June 19, 2025 –– The State Minister for Microfinance, Haruna Kasolo Kyeyune, has issued a strong warning to money lenders operating outside the law, stating that the government will take decisive action against exploitative and unregulated practices in the sector.
“We are coming for you,” Kasolo declared, stressing that while money lending is a legitimate business, it must be conducted within the boundaries of the law and in a way that safeguards both lenders and borrowers.
He made the remarks during the launch of the Microfinance Forum, held on Tuesday at Hotel Africana in Kampala. The event was organised by the Ministry of Finance, Planning and Economic Development [MoFPED], in collaboration with the Association of Microfinance Institutions of Uganda [AMFIU] and other stakeholders.
Kasolo expressed concern over the growing number of complaints regarding unscrupulous lenders who exploit borrowers through exorbitant interest rates and illegal conditions.
He reminded lenders that the government has already introduced interest rate caps, limiting monthly charges to a maximum of 2.8 percent.
“We issued regulations capping interest rates. If a money lender cannot comply with the maximum rate of 2.8 percent per month, then they do not qualify to be licensed,” he said.
The minister also directed Resident District Commissioners and other relevant authorities to investigate and halt such exploitative practices.
He condemned the reported requirement by some lenders for borrowers to mortgage their national identity cards, warning that those without valid IDs may be excluded from key government initiatives, such as the Parish Development Model [PDM].
“I have received reports that some money lenders are asking borrowers to mortgage their national identity cards. This is unacceptable,” Kasolo stated.
He reiterated the need for stricter regulation and oversight of the money lending sector to protect Ugandans from financial exploitation and to promote an inclusive financial system.
On the sidelines of the event, the President of the Money Lenders Association of Uganda, Jonan Kandwanaho, called on the government to adopt a more constructive approach towards unregistered and informal lenders. He advocated for education and integration, rather than punitive measures.
Kandwanaho emphasised the importance of distinguishing between responsible, licensed lenders, many of whom charge lower interest rates than some commercial banks, and those operating informally and charging exorbitant fees.
“You’ll find that some lenders, especially those affiliated with our association, charge even less than banks,” he said. “There are others charging exploitative rates, and I doubt they are formal operators. We should engage with them rather than fight them, as they are filling a gap that formal financial institutions have failed to address.”
He referenced the recently launched Fourth National Development Plan [NDP IV], which prioritises financial inclusion, asserting that this goal can only be achieved if all stakeholders, including informal lenders, are involved.
“If our goal is financial inclusion, then we shouldn’t be pushing people out. We need to ask: how can we support and educate them?” he added.
Citing a practical example, Kandwanaho explained: “Some lenders may advertise rates of 10 to 15 percent, but when you assess their loan books, the average collection rate is actually 4–5 percent. Why not encourage them to lend officially at lower rates, reduce defaults, and improve recovery? Lending at 5 percent with 100 percent recovery is better than charging 15 percent and losing the money.”
He also acknowledged that most exploitative lenders highlighted by the minister are not members of the association and often operate without registration through the Uganda Registration Services Bureau [URSB].
“We are doing our best to raise awareness. We want to educate these lenders so they can charge fair rates and serve clients better. That should be the shared approach of both the government and the association.”
Kandwanaho also echoed the minister’s concerns regarding the confiscation of national identity cards by lenders.
“You cannot recover a loan using a national ID. Borrowers are entitled to renew their IDs. Holding onto them does not aid in debt recovery,” he said.
Moses Kagwa, Director of Economic Affairs at the Ministry of Finance, announced that the government has begun restructuring the financial services sector by operationalising the Uganda Microfinance Regulatory Department, in line with the recently enacted Tier 4 Microfinance and Money Lenders Act, 2025.
Under the new framework, large Savings and Credit Cooperative Organisations [SACCOs] will now fall under the supervision of the Bank of Uganda, as outlined in the amended Microfinance Deposit-Taking Institutions [MDI] Act.
Kagwa urged cooperatives to begin the licensing process with the central bank, warning that: “Unlicensed cooperatives will not be allowed to obtain additional business licences, such as for agent banking or money remittances.”
Jacqueline Mbabazi, Executive Director of AMFIU, told journalists that the purpose of the Microfinance Forum was to bring together all stakeholders in the sector, including financial institutions, microfinance institutions, savings groups, and SACCOs, to collectively identify solutions to the challenges facing clients.
“We want to ensure that we are focusing on customers’ needs and addressing the different challenges they face,” Mbabazi said.
She noted that there is a concerted effort to encourage collaboration among government agencies, development partners, the cooperative movement, and other players to drive joint action for a more effective and inclusive financial ecosystem.
https://thecooperator.news/govt-to-tame-money-lenders-over-confiscation-of-national-ids/
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