Uganda’s government has warned moneylenders charging borrowers interest rates above the legally permitted 2.8 per cent per month that they risk losing their operating licences, raising renewed questions about the protection of borrowers against exploitative lending practices and the enforcement of financial regulations.
The warning was delivered by Henry Musasizi, the Minister of Finance, Planning and Economic Development, while addressing Parliament, where he said moneylenders must comply with the interest rate ceiling established under Legal Notice No. 21 of 2024.
Musasizi explained that the maximum interest must be calculated on the actual principal amount advanced to the borrower, rather than inflated loan figures or additional amounts introduced by lenders. He warned that authorities could revoke the licence of any moneylender found charging interest beyond the prescribed limit.
Under the regulation, a lender advancing Shs100,000 is permitted to charge a maximum of Shs2,800 in interest for one month. This translates into a maximum annual interest rate of 33.6 per cent.
The regulation was introduced through the Tier 4 Microfinance Institutions and Money Lenders (Prescription of Maximum Interest Rate) Notice, 2024, issued by then Finance Minister Matia Kasaija on November 8, 2024, and published in the Uganda Gazette on November 15, 2024.
The government introduced the ceiling to address concerns over excessive interest rates charged by moneylenders, some of whom had been accused of imposing harsh repayment conditions that pushed borrowers into deeper financial difficulties.
Musasizi also urged borrowers who encounter lenders charging above the prescribed rate to report them to the relevant authorities and seek legal redress rather than accepting unlawful charges.
However, the latest warning raises a broader question about how effectively the government has enforced the regulation since its introduction in 2024. Despite the legal ceiling, concerns about high borrowing costs, aggressive debt recovery practices and the vulnerability of people seeking emergency loans remain significant.
There is also a need for stronger supervision to establish whether licensed moneylenders are complying with the law and whether borrowers have accessible channels for reporting violations without facing intimidation or retaliation.
While the interest rate cap is intended to protect consumers, its effectiveness will ultimately depend on enforcement, public awareness and the willingness of regulators to take action against offenders.
The government must therefore demonstrate that the threat of licence revocation is more than a parliamentary warning by showing how many lenders have been investigated, penalised or had their licences withdrawn for violating the regulations.
For many Ugandans who turn to moneylenders because they cannot access affordable bank credit, the central issue is whether the law will translate into cheaper borrowing and genuine protection or remain another regulation that exists on paper while excessive lending charges continue.
Legal clarification: The 2.8 per cent ceiling under Legal Notice No. 21 of 2024 specifically applies to moneylenders. It should not automatically be interpreted as the same interest-rate ceiling for commercial banks and every other financial institution. parliamentwatch.ug+2
