Before you go to a money lender

Money lenders provide a lot of convenience and efficiency in providing quick loans. However the interest rates charged are very high and their repayment terms quite stringent. And when you default you bear their wrath in all forms.

So before you resort to a money lender consider the following:

  1. Can you get the money elsewhere? For instance savings, a friend, family, etc. It may be better to get the money from a friend than play around with money lenders.
  2. Alternative credit? For instance from an investment club, SACCO, commercial bank, or micro finance bank.
  3. Is it really that urgent? Do you really need the money that badly that you are willing to sign a bad deal with a money lender?
  4. Interest rates. Be careful here. A money lending contract is illegal and unenforceable if it directly or indirectly provides for — (a) the payment of compound interest; or (b) the rate or amount of interest being increased by reason of a default in the payment of sums due under the contract. Money lenders are not allowed to charge exorbitant and compound interest rates on loans. The interest charged should not exceed a maximum rate prescribed by the Minister.
  5. Does your money lender have a license? Money lenders are regulated by the Uganda Microfinance Regulatory Authority as required by the  Tier 4 Microfinance Institutions and Money Lenders Act of 2016. As of 2020 there were over 750 registered money lenders in the country. So make sure your money lender is duly licensed before you deal with them. You can access the register from the Authority at a small fee.
  6. Written agreement. A written agreement should be in place indicating the date on which the interest on the principle is payable; the interest computed on the monthly outstanding balance of the principal; the frequency of installments to be paid; the right to redeem the collateral before it is disposed off; the chargeable fees for the loan transaction; the charges for late repayment; and the conditions under which collateral for the loan may be sold. Don’t get money from a money lender without a written contract. Make sure your lawyer reviews the contract before signing.
  7. Collateral. A money Lender is not allowed to take your National ID, passport, warrant card, or other documents establishing the identity or nationality of the holder, bank savings, ATM Cards and security codes for the ATM cards as collateral for money borrowed. You should not sign sale’s agreements for accessing credit facilities instead of loans agreements. Do not sign transfer documents in favour of the money lender as part of the security for accessing credit. A moneylender is not allowed to take client deposits. A money lender can’t sell your collateral unless 60 days have passed since a written demand notice has been issued to you.  The money lender is also required to get a valuation of your collateral before sale. In either case you still retain the right to pay any outstanding monies and costs to redeem the collateral before it is disposed off. 
  8. Loan repayments. When the money plays hide and seek with you as you try to pay him back you can deposit the money with the Uganda Microfinance Regulatory Authority. This way the money lender can’t claim that you defaulted. Whenever you sense fraud or foul play from the money lender you can register a complaint with the Authority. Money lenders are prohibited from taking blank cheques to secure repayments. Additional expenses and adhoc charges for arranging the loans are also prohibited. And in any case they must be properly disclosed.

Money lending is a regulated business and you should carefully consider all options before resorting to a money lender.

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