Legal Notice No. 21 of 2024 under the Tier 4 Microfinance Institutions and Money Lenders Act, Cap 61 issued by Finance, Planning and Economic Development Minister Matia Kasaija, recently capped the maximum interest rates money lenders can charge at 2.8% per month or 33.6%.

Economists and the business community have all warned that the capped rates will discourage money lenders from conducting their regular business activities as they secure long-term capital based on prevailing free-market rates. Various economists further raised concerns that some money lending activities could go underground, creating higher risks for borrowers —the opposite of what the government intended to achieve.

“MLAU involves ethical money lenders who have an interest in safeguarding Uganda’s financial systems through ethical credit services to borrowers,” Jonan Kandwanaho, Chair of the Money Lenders Association of Uganda, said during a press briefing at Kingdom Kampala. “This time around, especially as a direct result of this new policy capping rates being introduced at such short notice, the economy is going to tell a different story.”

He added, “The effect will also be felt by the government because the constricted activity will lead to fewer taxes being paid.”

MLAU plays a crucial role in lubricating the gears of Uganda’s economy, particularly in sectors where traditional banking services may be limited or inaccessible. Its members serve as a vital lifeline for small businesses, market vendors, and entrepreneurs who rely on short-term loans to purchase inventory, bridge cash flow gaps, or seize time-sensitive business opportunities.

The Uganda Microfinance Regulatory Authority (UMRA) reports as of September 2023, 1,302 licensed money lenders had extended loans to about 2.5 Million customers, with an outstanding portfolio of UGX1.2 trillion. This substantial figure underscores the sector’s significant contribution to economic activity.

Money lenders often provide the necessary capital for farmers to buy seeds and fertilizers, shopkeepers to stock, and transport operators to maintain their vehicles, to mention but a few —all essential activities that keep the wheels of commerce turning. Moreover, by offering financial services to those who might otherwise be excluded from the formal banking sector, MLAU members contribute to financial inclusion, which is a key driver of economic growth and poverty reduction.

MLAU’s ability to process loans quickly and with flexible terms means that it can respond rapidly to the dynamic needs of Uganda’s vibrant informal sector, which forms the backbone of the country’s economy.

“As we hold these discussions we should also recognize the concerns that led us to this point, and we are willing to work with the regulators to address this,” noted Kandwanaho. “We know that there are individuals within our sector whose practices may not align with the highest standards of ethical lending. We are committed to improving the overall integrity of our industry, working with all stakeholders.”

The Money Lenders Association of Uganda believes that through constructive dialogue and cooperation with regulatory bodies and the government, they can address all concerns, improve industry standards, and continue to serve Ugandans responsibly to safeguard the country’s financial future.

The post MLAU Urges Government and Economists to Reconsider Lending Rate Caps appeared first on PC Tech Magazine.

Being at the helm of regulating the operation of microfinance institutions, UMRA’s collaboration with Wendi is a key milestone in enhancing financial inclusion through streamlining the operation of Savings and Credit Cooperatives (SACCOs), Village Savings and Loan Associations (VSLAs), Self-Help Groups, and Non-Deposit Taking Microfinance Institutions (NDT-MFIs)—into the digital age, thus championing sustainable financial inclusion especially in the hard to reach places where there are no physical banking facilities.

Andrew Kabeera PostBank’s Executive Director, stated that their partnership with UMRA is timely as it will help the bank boost financial literacy skills and ensure savings groups have access to essential financial services, regardless of their banking affiliation.

“The bank is dedicated to fostering prosperity for Ugandans through innovative and tailored financial products,” he told the press during the launch at UMRA Offices. “With Wendi, we are delighted to empower individuals and groups, especially those underserved by traditional financial institutions, to access secure savings accounts, earn 10% annual interest on daily savings, and conduct various financial transactions.”

Kabeera added that “Wendi was designed to offer seamless financial services to underserved and last-mile customers, hence PostBank or non – PostBank customers can access, manage, and transact funds efficiently both on a smartphone and a feature phone.”

Executive Director of UMRA, Ms. Edith Tusuubira emphasized the transformative impact this partnership will have on Uganda’s financial landscape.

“Leveraging Wendi to digitize savings groups across the country is a great initiative and we thank PostBank for taking this innovative approach because it aligns with Uganda’s National Financial Inclusion Strategy of bridging the gap of access to financial services for millions of Ugandans,” said Tusuubira. “By embracing digital technology, we will enhance financial literacy, security, and convenience for our people while fostering economic empowerment,”

Tusuubira pointed out that UMRA commits to continuously support sector players like PostBank who have introduced services like the Wendi which addresses key challenges faced by informal savings mechanisms since the Authority is trying to streamline operations as the regulator.”

A recent study by FinScope revealed a sharp increase in the adoption of SACCOs and mobile money services in Uganda since 2018. SACCO usage rose from 5% in 2018 to 15% in 2023, while Mobile Money usage jumped from 23% to 42% over the same period. Despite this growth, many Ugandans still store money at home, signaling a lack of confidence in both formal and informal financial service providers.

Furthermore, only 2 in 10 Ugandans save electronically, emphasizing the urgent need for digital solutions like Wendi to bridge the gap in financial inclusion. Wendi promises to offer secure and convenient financial services to help address these challenges.

See also: PostBank, MTN Mobile Money (U) Limited launch a digital microlending solution

The post UMRA, PostBank to Digitize Tier IV Microfinance Institutions with Wendi Platform appeared first on PC Tech Magazine.