By Mulengera Reporters
Uganda’s microfinance lenders have been warned against irresponsible lending and aggressive loan recovery, with regulators stressing that lenders must assess borrowers’ ability to repay before extending credit.
The warning was issued by Edith Tusuubira, Commissioner in the Microfinance Regulatory Department at the Ministry of Finance, Planning and Economic Development, during the inaugural Founders, Directors and Board Members Conference for Tier IV institutions held at Motiv Creation Centre in Bugolobi.
The two-day conference, held under the theme “Built to Last: Governance, Leadership and Transformation for Sustainable Tier IV Institutions,” brought together government officials, regulators, financial institutions and sector players to discuss the future of Uganda’s microfinance industry.
Tusuubira told lenders that the regulatory environment had changed and institutions could no longer depend on prolonged loan recovery or accumulating charges when borrowers default.
“You have to lend responsibly,” she said, explaining that when a lender advances Shs1 million, the maximum amount recoverable is Shs2 million, even if the borrower takes several years to repay the loan.
She said the rule should force lenders to become more careful at the point of issuing credit, rather than relying on recovery measures after a borrower has failed to pay.
“Before you look for recovery, ensure that the one you are lending is able to pay you back. So do proper due diligence on the customer,” Tusuubira said.
The regulator said the requirement is aimed at discouraging a lending model in which institutions issue loans without adequately assessing borrowers and later seek to recover significantly more than the amount originally advanced.
Tusuubira said regulators were also working to strengthen credit information sharing among Tier IV institutions to enable lenders to establish the existing exposure of prospective borrowers before approving new loans.
She said the system would help lenders identify customers who already have loans with other institutions and could therefore be at risk of becoming over-indebted.
“We are going for credit information sharing, such that all these people who are lending themselves within the sector, Tier 4, will be knowing easily when you register with us,” she said.
The push for greater credit information sharing comes as government strengthens oversight of SACCOs, non-deposit-taking microfinance institutions and money lenders, with responsible lending increasingly becoming a key part of financial-sector regulation.
Closing the Strategic Capacity Building conference, Minister of State for Microfinance Shartsi Musherure said government’s regulatory framework was intended to strengthen the sector and protect the savings and interests of ordinary Ugandans.
“Government recognises this vital role through the Tier 4 Microfinance Institutions and Money Lenders Act. We have established a regulatory framework designed not to stifle you but to strengthen you,” Musherure said.
She said Tier IV institutions remain critical to financial inclusion because they reach sections of the population often underserved by commercial banks, including farmers, market vendors and small entrepreneurs who may lack conventional collateral.
But Musherure cautioned that access to finance must be matched with sustainable and responsible financial services.
“Financial inclusion is not merely about access to services. It’s about access to sustainable services,” she said.
She urged boards and managers of Tier IV institutions to strengthen governance, improve risk management, embrace digital systems and invest in the professional development of their staff.
The minister also called for greater collaboration between government and the sector to improve access to affordable wholesale funding, strengthen data and information sharing and develop regulation that is proportionate to the size and nature of individual institutions.
The conference comes at a time when government is seeking to expand financial inclusion while also tightening safeguards around lending and financial consumer protection.
For lenders, the message from the regulator is increasingly shifting from simply expanding loan books to ensuring that credit is issued responsibly, based on a clear understanding of a customer’s ability to repay and existing financial obligations.
The new approach places greater responsibility on lenders to get their decisions right before money changes hands, rather than relying on aggressive recovery measures after a loan has gone bad. (For comments on this story, get back to us on 0705579994 [WhatsApp line], 0779411734 & 041 4674611 or email us at mulengeranews@gmail.com).
