KAMPALA, Uganda | Money lenders in Uganda have issued a formal notice of intention to sue the government over a recently enacted regulation capping their interest rates at 33.6% per annum (2.8% per month). The Uganda Money Lenders Association argues that the policy is discriminatory, undermines their sector, and violates principles of equality in Uganda’s liberalized economy.

The contentious cap, introduced to protect borrowers from predatory practices, has sparked outrage among licensed money lenders. The association insists that high rates and unethical practices are largely due to unlicensed operators and unsupervised digital lenders, not their members who operate under the Tier 4 Microfinance Institutions and Money Lenders Act, 2016.

 Why Money Lenders Oppose the Cap

The Uganda Money Lenders Association claims the regulation unfairly targets their industry while exempting banks, microfinance institutions, and digital lenders. This, they argue, creates an uneven playing field, stifling competition in the financial sector.

“Our clients are astonished that such a discriminatory policy could be enacted without adequate consultation,” said Mwesigwa Rukutana & Co. Advocates, representing the association.

The association also highlights a history of interest rate caps in Uganda, including a 24% cap under the repealed Money Lenders Act, which they argue was counterproductive. They believe reintroducing such caps threatens the sustainability of a sector crucial to financial inclusion for millions of Ugandans.

Money lenders have long been a financial lifeline for individuals and businesses excluded from formal banking systems. Farmers, small business owners, and those seeking urgent credit rely heavily on their services. However, the association warns that the cap will render many operations unsustainable, potentially driving licensed money lenders out of business and leaving vulnerable populations without access to critical financial support.

Instead of a blanket cap, the association proposes stronger enforcement against unlicensed operators, public education on ethical lending practices, and the establishment of a government-backed fund to provide affordable loans to licensed lenders. They believe these measures would address the root causes of exploitation without stifling legitimate businesses.

The money lenders point to a 2018 High Court ruling that stayed the implementation of similar regulations, deeming them discriminatory. They warn that unless the government rescinds the cap or engages in dialogue, legal action will follow within seven days.

As the money lenders prepare for what could be a legal battle, the stakes are high. For the government, this is an opportunity to balance consumer protection with fair competition in the financial sector. For the money lenders, it is a fight to preserve their industry and their role in providing financial inclusion to millions of Ugandans. The question now is whether dialogue can prevent the courts from becoming the final arbiter in this contentious matter.