The Minister of State for Finance (General Duties), Henry Musasizi has revealed plans by Government to impose a time frame of six months within which money lenders are meant to impose interest rates because capping interest rates isn’t good economics.
“We know that some money lenders charge interest of more than 100% of the amount of the loan. And without discussing what we are discussing, one of the conditions that we are putting is that you shouldn’t charge interest for more than 6 months. If six months elapse, the interest is terminated,” he said.
Musasizi made the pronouncement during the plenary sitting while responding to a concern raised by Amos Okot (Agago North) who decried the rampant harassment of civil servants by loan sharks who have gone as far as confiscating the Automated Teller Machine (ATM), which has left them struggling financially.
“Many of them are always being manipulated by Micro-finance institutions where in many cases, they borrow money, they don’t keep their ATM cards with them, so they move up and down. So we said why don’t we come together, form a SACCO of our own and then out of our own initiative, we can solve our own problems,” remarked Okot.
This prompted Speaker Anita Among to ask Minister Musaszi to explain if the ATM cards are being accepted as collateral, however in his response, Musasizi denied knowledge about the practice, saying there is no law that categorizes an ATM card as form of collateral.
“It hasn’t come to our attention that people are being asked to present their ATMs as collateral, and to the best of my knowledge, there is no law that recognises an ATM, as collateral security. I therefore want to believe that if this is happening, it is a relationship between the borrower and the lender,” said Musasizi.
Amos Kankunda (Rwampara County) who also doubles as Chairperson, Parliament’s Finance Committee informed Parliament of plans by the Committee to summon the Uganda Micro-finance Regulatory Authority (UMRA) to respond to the complaints raised against money lenders including exorbitant interest rates and controversial collateral collected from the borrowers.
Responding to questions on how far the Ministry of Finance has gone in implementing the presidential directive on capping interest rates amongst money lenders, Minister Musasizi revealed that the Ministry is working to implement the provision in section 90 of the Uganda Micro-finance Regulatory Authority Act on capping interest rates so as to address issues raised against money lenders.
“We are working out an instrument, we do recognize that capping of interest, isn’t good economics, but we also know that under this provision which clearly lays down conditions under which the money lenders must operate and we think when we do this, we shall be able to address all the concerns that our people have been having,” said Musasizi.
However, his response prompted more questions from Speaker Among remarking, “Is having huge exorbitant rates good economics? Because if capping interest rates isn’t good economics and remember that these people are charging up to 30% and you have powers as the Minister to ensure that you support society.”
The Minister revealed that the technical team at the Ministry of Finance is finalising on the regulations and these would be ready within two weeks saying, “We are working on an instrument which will address the concerns which the population has been having in regards to overcharging and extortion and other things money lenders have been doing. We have moved a great mile, I just need to check with the technical team whom I gave the instructions, they should be ready in 1-2weeks.”
Speaker Among also called for sensitisation among masses before embarking on borrowing money noting, “But we also need to do some financial literacy, people must know, must you borrow and if you are borrowing, what are you borrowing for? For how long and from whom? Is it from a money lender or loan shark? People must first make a financial analysis for them to understand before they borrow. Like these men here, they borrow money to go and marry.
The development comes at the time when recently, Deputy Speaker, Thomas Tayebwa has revealed that the top administration of Parliament agreed to evict and cancel all agreements signed between Parliament and money lenders after complaints of harassing MPs over delayed payment of loans.