Money Lenders in Uganda – How to Start the Moneylending Busines Right

Money lending is another perfect business idea that can be successful in Uganda. if you have capital and you’re ready to begin, you need to ensure that your new business is well planned out, registered properly with the relevant authorities, and legally compliant.

Who is A Money Lender?

As defined in the tier 4 microfinance and money lenders act (money lenders) regulations, 2017, a “Moneylender” means a company engaging or intending to engage in money lending business.

This company makes funds available to a person or business with the expectation that the funds will be repaid. Repayment will include the payment of any interest or fees. It is from this interest that the moneylender makes a profit.

Plan Your Business Well

A simple and clear business plan is essential for the success of any business including moneylending. It can help you to map out the specifics of your business and discover some fewer known requirements to succeed as a moneylender. You may have to ask yourself the following questions:

• What are the startup and ongoing costs?
• Who is your target market?
• How much can you charge customers?
• What will you name your business?

One of the advantages of starting a money lending business is that it doesn’t have a lot of overhead. You will need a few professionals in key areas like loan procession, debt collection, and bookkeeping.

You can budget for employee salaries, advertising costs, general office supplies, a nice website, and a small office space since it is a requirement to declare your intended place of business to the authorities like UMRA.

Registering Your Business

You have now decided to start your business but, what will you name your business?

Keep the name short, simple, and easy to write and remember. You can consider acronyms of the name.

Think about the names of companies you admire and how those names were crafted. They typically have a few things in common: their names are short, simple, easy to write, and easy to remember.

Choosing the right name is important and challenging. If you don’t already have a name in mind you may start writing a few keywords related to money lending like financial services, micro-lending services, etc.

When registering a business name, we recommend researching your business name by checking:

• Uganda Registration Services Bureau (URSB) records
• Social media platforms
• Web domain availability

You have to register your company because later you will need to present incorporation documents when applying for a Money Lending License. Establishing a legal business entity such as an LLC or corporation also protects you from being held personally liable if your moneylending company is issued.

What You Need to Know About the Regulations about UMRA

Uganda Microfinance Regulatory Authority (UMRA) is an Authority established under Section 6 of the Tier 4 Microfinance Institution and MoneyLenders Act, 2016 with the key purpose of Regulation, Supervision, and Licensing the all Tier 4 Microfinance Institutions and Money Lenders in the country to ensure the financial health, sustainability and financial discipline in the industry.

In May 2016, the Tier IV Microfinance Institutions Act was passed by the Parliament. A key provision of the Act is the establishment of the UMRA, which has the mandate to license, regulate and supervise all Tier IV financial institutions.

Tier 4 MFIs consists of a range of semi-formal and informal financial institutions including savings and credit cooperatives (SACCOs); credit-only microfinance non-governmental organizations (NGOs); private businesses and individuals engaged in financial services (including money lenders); and other community-based and informal financial groups, such as village savings and loan associations (VSLAs).

The Authority must carry out onsite inspection at the moneylender’s place of business to ensure compliance with the license, the provisions of the Act, and these regulations.

Application for A Money Lending License

It has been a common practice to find money lenders informally giving loans with very high interest to unsuspecting clients who lose property after failing to pay back.

Today any person who intends to carry on the business of moneylending will have to apply formally to the Uganda Microfinance Regulatory Authority (UMRA).

This has to be in writing as guided by section 78 (3) of the tier 4 microfinance institutions and money lenders Act,2016. This application has to be accompanied by evidence of payment of application fees.

The authority can also decide to carry out due diligence on the assignee or transferee directors and other persons to be involved in the management of the business

The issuance of the license depends on whether the authority is satisfied that the application. Your application has to meet the requirements including;

• Certificate of Company Incorporation
• Forms of particulars of Directors and Secretary
• Registered Address of the Company
• National Identity Cards for Directors and Secretary
• Evidence of Payment of Application Fees (Receipt)

If you have succeeded in the money lending business for that particular year, you may want to renew your license.

This has to be done in writing to the Authority at least two months before the expiry of the current license. You also have to pay the prescribed fees for the renewal of the license.

It is wise to do a self-assessment before you can apply for renewal of the license to make sure that you comply with all the regulations. Check if you have done the following;

• Make Sure You Notify the Authority of Change in Management
• If You Change Your Address, Notify the Authority
• Keep Proper Business Records
• Submit Required Reports to The Authority

What Are the Duties of a Money Lender?

Under Tier 4 Microfinance and Money Lenders Act (Money Lenders) Regulations, 2017, the Authority has clearly outlined the core duties of a Money lender. These include the following:

• Display the money lending license at all times at a conspicuous place at the premises where the money lending business is conducted.
• furnish the borrower with a copy of the loan agreement, including all annexures.
• Display interest rates charges at all times at a conspicuous place at the premises where the money lending business is conducted.
• Notify the Authority of any intended change in the management of a money lending business within at least seven days before the changes take effect.
• Keep and maintain records that include proper books account, a cash book, ledger, register of securities, register of debtors, and such other books of accounts in such form and such manner as the Authority may require.
• Maintain a physical address and notify the Authority of any change in address within seven days after the change.
• maintain and retain records relating to the money lending business for seven years. On request by the Authority provide such records as may be required.

Why the Borrower May Deposit Money with The Authority

Some money lenders tend to disappear especially on the date of repayment either to increase interest and roll the loan over or even take the property agreed to be a collateral security. If a moneylender refuses to accept any sum in repayment or where it becomes impracticable for the borrower to find the moneylender and make a payment; the borrower may deposit the said sum with the Authority.

Because of transparency and accountability, the authority will issue a receipt indicating the sum received. The authority will a written notice of the deposit to be served on the moneylender, and require the money lender to appear before the authority and receive any monies deposited, and to reconcile accounts of the borrower to reflect the sum deposited as money duly paid.

Moneylenders also need to know that the interest charged on a loan by a moneylender has to be computed on the monthly outstanding balance of principal remaining after deducting from the original principal the total payments made by or on behalf of the borrower which is appropriated to the principal.

A Moneylender is also obliged to publish charges. This is intended to disclose to the borrower clearly and conspicuously before entering into the agreement the charges and transaction fees to be charged or incurred under the lending transaction.

What Should Be Included in A Moneylending Contract?

As guided under section 85, a moneylending contract shall include the following: –

• The interest rate for the loan has to be expressed as a percentage per month if the repayment period does not exceed one year
• The interest has to be computed on the monthly outstanding balance of the principal
• The date on which the interest on the principal is payable
• The frequency of installments to be paid
• The right to redeem the collateral given as security before the moneylender can dispose of it off
• The right of the borrower to make an early repayment and redeem the collateral
• The permitted fees for the loan transaction to be charged
• A mediation clause providing for a mediator to be appointed by the authority to resolve any disputes that may emerge.

Is There Confidentiality and Nondisclosure?

Just like any other business that deals with client data, the moneylender must keep the information furnished by the borrower confidential. The moneylender should not disclose the information to a third party without the written consent of the borrower unless it is for crime prevention or detection.

The moneylender has to provide information to the borrower about loan transactions like outstanding amounts on the principal, interest payable, and payments revived by the money lender in respect of the loan and dates on which they were received.

Summary

The government of the Republic of Uganda is committed to protecting the borrowers and that is why UMRA was established to regulate the activities of Tier 4 Microfinance Institutions and Money Lenders and to promote the growth of a sustainable Microfinance Industry. UMRA also provides advice to the government on matters relating to the development and operation of tier 4 microfinance institutions. This is because the authority conducts periodic reviews of the activities of tier 4 microfinance institutions with reports from tier 4 Microfinance institutions.

MORE WEB RESOURCES AND USEFUL LINKS

Uganda Microfinance Regulatory Authority (UMRA) has created a section on the website for frequently-asked questions that gives quick answers to stakeholder questions. The idea is to keep the answers short and direct so that people find info quickly. You can follow that link below;

https://umra.go.ug/faqs/

The authority also has quick access resources and downloads including:

• Application for A Money Lenders License: Download (Application For A Money Lenders License) Application For A License (Non-Deposit)
• Download Document Application For A License (Non-Deposit)
• Download Document SACCO LICENSE APPLICATION FORM
• Money Lender’s Renewal Application Form 24-09-2020. Download Document here
• The Tier 4 Microfinance and Moneylenders (SACCO) Regulations, 2020
• Download (The Tier 4 Microfinance And Moneylenders (SACCO) Regulations, 2020)
• Download (Application Form For Money Lending License)