In response to recent directives by industry regulators and President Yoweri Museveni, urging microfinance institutions and money lenders to operate within legal frameworks, financial experts are emphasizing the importance of ethical business practices. This call comes amid concerns about high-interest rates, loan recovery methods, and the need for sustainable governance within the sector.

At the Microfinance and Saccos Governance Forum in Kampala, President Museveni expressed astonishment at lenders charging exorbitant interest rates, some as high as 20 percent per month, equivalent to 240 percent annually. Sheila Birungi, Head of the Legal Department at the Uganda Microfinance Regulatory Authority (UMRA), revealed that some lenders were charging as much as 50 percent monthly, translating to a staggering 600 percent annually.

While discussions are ongoing to address these concerns, the government, in line with its economic liberalization policy, is hesitant to impose interest rate caps. Instead, as an internal solution, UMRA has decided not to grant licenses to applicants intending to charge high-interest rates. However, Birungi emphasized that a cap would be discriminatory unless applied uniformly across the entire financial industry.

In response to the President’s directive that no one should face eviction due to loan default, lenders raised concerns about borrowers exploiting this directive by refusing to repay loans, particularly those secured against their homes. Birungi suggested that in cases where homes were pledged as collateral, lenders should obtain a court order to enforce the contract.

The theme of the forum, “Strengthening Governance Practices for Growth and Sustainability,” highlighted the shifting focus from profit-making to good governance that considers both people and the environment.

Goretti Masadde, CEO of the Uganda Institute of Banking and Financial Services (UIBFS), stressed the growing importance of environmental, social, and corporate governance (ESG) in business operations worldwide. Masadde emphasized that embracing ESG principles is essential for the sustainability of lenders and other sectors.

Dison Okumu, CEO of the Uganda Institute of Corporate Governance, urged leaders of Savings and Credit Cooperative Organizations (SACCOs) and microfinance institutions (MFIs) to establish structures that foster public trust. According to Okumu, compliance with laws and regulations alone is insufficient for ensuring sustainability; organizations must also prioritize people-focused structures.

As the financial sector grapples with these challenges, the ongoing discussions and efforts by regulators, government, and industry leaders aim to create a more transparent, ethical, and sustainable lending environment in Uganda.