Overview:
The Minister of Finance, Planning and Economic Development, in Legal Notice No 21 of 2024, published in the National Gazette on November 15, caps the interest rates charged by money lenders at 2.8 percent per month or 33.6 percent annually.
A group of money lenders has petitioned the Finance Minister, challenging Section 90 of the Tier 4 Microfinance and Money Lenders Act 2016, which gives him powers to determine interest rates.
Through lawyer Male Mabirizi, who is also a member of General Secretary of Money Lenders Union Ltd, the moneylenders argue that the Finance Minister’s legal instrument is in contempt of constitutional petition 46 of 2017, which had stayed a similar directive.
In March 2019, the Moneylenders Association of Uganda Ltd, MK Creditors Ltd and the Moneylenders Union Ltd secured a court order against the Attorney General and the Uganda Microfinance Regulatory Authority (UMRA) against capping interest rates.
Until the stay and the main petition are successfully handled, Mabirizi says any new directive by the minister remains unenforceable, unlawful and in contempt of court.
The Minister of Finance, Planning and Economic Development, in Legal Notice No 21 of 2024, published in the National Gazette on November 15, caps the interest rates charged by money lenders at 2.8 percent per month or 33.6 percent annually.
Minister Matia Kasaija said he derived the powers from Section 89 (1) of the Tier 4 Microfinance Institutions and Money Lenders Act,
Section 90 (1) of the Act states, “The Minister in charge of finance, may in consultation with the Authority, by notice in Gazette, prescribe a maximum interest rate that a money lender shall charge.”
However, the High Court in response to the 2017 petition by the money leaders, ruled: “HCMC No. 102 of 2018 and all applications arising there from before this court in respect of and/or arising out of and/or touching and/or concerning the impugned Regulations made under impugned provisions of the parent Act now being challenged before the Constitutional Court; are hereby stayed pending the outcome of the petition in the Constitutional Court.”
It added, “In the interest of fairness and justice of the case before this court, the Respondents are, in the meantime, restrained from implementing and/or enforcing the specific Regulations about the Applicants…pending the outcome of the Constitutional Petition.”
It is on this basis that the money lenders say the minister has no powers over interest rates.
“We, therefore, notify you that your hands to cap moneylenders’ interest rates are tied by your own ministry’s commitments, court order, and constitutional petition 46 of 2017. Capping will amount to contempt of Court against you,” Mabirizi said in his petition to the minister.
The law also provides a fine of 50 currency points or 1 Million Shillings in case of violation, a refund to the borrower, of all money paid in excess of the maximum rate as well as revocation of the license.
Mabirizi says the court order issued by Justice Andrew Bashaija still stands and any new Instrument by the minister is “hot air”.
Money lenders have always thrived on the despair and frustration of Ugandans who fail to conveniently get affordable credit from commercial banks especially due to complex paperwork, collateral and other terms and conditions.
UMRA says they are ready to enforce the new directives, saying the minister issued them for the protection of borrowers.