Licensed digital/online money lenders, who are diverting from the newly issued digital lending guidelines issued in March by the Uganda Microfinance Regulatory Authority (UMRA), risk having their licences revoked, the sector regulator has warned.
The executive director of Umra, Ms Edith Tusubira, in a May 31 circular addressed to all digital credit providers said some of them are not operating in line with the guidelines and instead publish false, misleading, and deceptive representation.
“This is, therefore, to direct all the digital credit providers to cease engaging in harmful lending practices and hereby direct you to comply with the Digital Lending Guidelines Vol.1 (2024) and other related laws and regulations,” Ms Tusubira said.
She added: “Umra will institute the necessary administrative measures against any licensed institution that fails to abide by the Tier 4 Microfinance Institutions and Moneylenders, 2016, Regulations (2018), issued Digital Lending Guidelines (2024) and Financial Consumer Protection Guidelines (2019).”
She also claimed some online money lenders are using unethical loan collection practices and harassing their borrowers yet the guidelines stipulate clearly how they should conduct themselves
When contacted yesterday, Ms Tusubira confirmed the development but said she was unable to divulge details because she was engaged in another meeting at the moment.
Officials at Umra, who spoke to this publication but asked not to be named, said they have received multiple complaints from clients who say some of the licensed digital lenders are still harassing them.
Umra in March launched the 25 guidelines that summarise how online lenders should conduct themselves and interact with customers in a legally acceptable manner.
According to the guidelines, the digital/online lenders are among others supposed to be fully licensed by Umra, have a physically locatable address, always furnish their clients with their loan updates, observe the principle of customer confidentiality, seek customer’s consent before sharing their information anywhere, and give out loans in accordance with its credit policy.
Interest
They are also not supposed to charge any defaulting customer interest that exceeds 50 percent of the total amount of money they borrowed the latter, are barred from recovering their money through court processes, use of threats or other criminal means, provide the customer with avenues of filing complaints, avoid false advertisement, and declare the source of their income and that of their clients to ensure that they fulfill the requirements of Anti-Money Laundering (Amendment) 2022.
The formulation of these guidelines was informed by clients’ complaints and an investigation that was done by this publication in a Special Report article published on April 5 titled Online Moneylenders Preying on Ugandans, which discovered that the lenders were not only cheating Ugandans but also exposing their information to the public illegally.
First unveiled in September last year, the guidelines were drafted after a benchmark by officials from Umra, the Bank of Uganda, and officials from the finance ministry.
Registration
“A digital credit provider using any loan app shall register the trading business name under the Company Act if it differs from the registered company name. A digital credit provider may extend digital credit to customers according to its credit policy,” reads part of the guidelines.
“A digital credit provider shall not charge an interest penalty on default which exceeds half the initial interest at the time of offering a loan and may recover a maximum amount from a customer with respect to a nonperforming loan. A digital credit provider may set borrower limits in its credit policy and the limits shall comply with any requirements prescribed by the UMRA,” they add.
The guidelines further add that a digital credit provider shall establish a complaints redress mechanism, including a channel for communicating customer complaints, and shall ensure proper communication of this mechanism to its customers.
Mr Ben Kavuya, the chairperson of the Advisory Board of the Uganda Money Lenders Association, when contacted yesterday welcomed the directive of Umra which he said should not only stop in talking but also act and weed out wrong elements in their business.
