KAMPALA, Uganda | Uganda’s Ministry of Finance, Planning, and Economic Development has issued a Legal Notice, introducing an interest rate cap for Tier 4 Microfinance Institutions and money lenders. The regulation sets a maximum interest rate of 2.8% per month, equating to 33.6% per annum. This directive is aimed at curbing excessive lending practices and protecting borrowers from unsustainable debt.

The move follows concerns raised by President Museveni on several occasions about exploitative tendencies in the money lending sector. The President has criticized the high interest rates charged by some lenders, citing examples where borrowers faced extreme financial distress. He noted that, despite a national inflation rate of approximately 3%, some money lenders were charging annual interest rates as high as 240%. This, he argued, threatens not only individual borrowers but also the broader economic stability.

In response, Finance Minister Matia Kasaija issued the Legal Notice to implement the interest rate cap, aimed at ensuring fairness and promoting financial inclusion. The directive is designed to protect small-scale entrepreneurs and other vulnerable borrowers who rely on microloans for their livelihood. The Ministry emphasized that by capping interest rates, the government seeks to create a more balanced financial sector that supports economic growth without imposing excessive financial burdens on borrowers.

The regulation is expected to have a significant impact on the lending industry, particularly affecting money lenders and Tier 4 Microfinance Institutions that have previously relied on higher interest margins. Industry analysts anticipate that the cap may prompt some lenders to revise their business models, potentially reducing the availability of high-risk loans. However, the Finance Ministry maintains that the directive is necessary to protect borrowers and enhance financial stability.