PROFILE: UGANDA MICROFINANCE REGULATORY AUTHORITY
The Uganda Microfinance Regulatory Authority (UMRA) is a government statutory body established to regulate small-scale lending, borrowing and savings activities, known as microfinance.
It is responsible for ensuring that borrowers, lenders and savers are protected from losses arising from saving, lending and borrowing during the operations of a lender or when they stop operating.
The operators under this business are the Tier 4 Microfinance Institutions (MFIs), money lenders and Savings and Credit organisations (SACCOs), village saving and loan associations (VSLAs), collectively referred to as non-bank financial institutions.
Tier 4 MFIs are not allowed to take public deposits, while SACCOs and VSLAs accept savings from their members.
In May 2016, the Tier IV Microfinance Institutions and Money lenders Act was passed by the Parliament to govern the activities under this category with the objective of limiting predatory lending and unethical practices, and building confidence in the system to promote financial inclusion.
UMRA is expected to promote a sound and sustainable non-bank financial institution’s sector (savings and credit cooperatives) to enhance financial inclusion, financial stability, and financial consumer protection among the clients.
UMRA also seeks to protect interests of members and beneficiaries of the institutions including the promotion of transparency and accountability by applying both prudential and non-prudential standards, promote stability and integrity of the financial sector through ensuring stability and security of Tier 4 microfinance institutions and other functions.
UMRA’s Vision is “To be a world-class regulator by promoting stability of the microfinance sector to achieve financial inclusion.”
Their Mission: “To support the sustainable growth of Tier 4 Microfinance Institutions and Money lenders through effective regulation, licensing and supervision.
Any person or entity wishing to conduct such business is required to get UMRAs license.
So far, about 1,500 applications have received and licenses issued since the year 2018 under the Tier 4 microfinance institutions and money lenders Act, 2016, while about 900 are in operation, according to UMRA records.
UMRA works closely with the Associations and the Unions of the Money Lenders like Uganda Money Lenders Association to ease enforcement of policies, programs and legislations for that sector.
The fact law requires the authority to gazette all Tier 4 Microfinance Institutions in at least a Newspaper of nationwide circulation in the country, as a way of letting the public aware of who to deal with, and to limit the number of illegal and unregistered Money Lenders from transacting.
Why UMRA was established
* Promoting legitimacy and building the confidence of members, customers and investors in the Microfinance Facilitating the microfinance industry to promote social and economic development Business
* Establishing prudential standards for microfinance institutions in order to safeguard the deposits of members, prevent financial system instability of the funds of depositors and ensure stability of the financial system
* Applying prudential standards to tier 4 microfinance institutions by:—
-Defining sources of capital;
-Establishing default protection mechanisms;
-Enforcing compliance with generally accepted accounting practices; and
-Instituting mechanisms for the prevention of fraud and financial crimes
-Providing a framework for the management and control of money lending.
Control of interest rates
The law, under Section 90, gives the Minister of Finance, Planning and Economic Development powers to control interest rates if non-bank financial institutions.
*The Minister may, in consultation with the Authority, by notice in the Gazette, prescribe a maximum interest rate which a money lender shall charge.
*A money lender who charges an interest that is higher than the maximum interest rate prescribed by the Minister commits an offence and on conviction, is liable to a fine not exceeding fifty currency points and the court may,
*In addition to the fine, the minister may order that the money lenders licence be cancelled and the money lender pays the borrower any money paid in excess as a result of the interest rate charged.
Online lending
In March 2024, UMRA issued guidelines for digital or online lending, following increasing concerns from the public about unethical activities by the app-based lenders.
Digital lenders must register with UMRA and obtain an operating license within three months of starting operations.
Lenders are prohibited from charging defaulting customers more than half of the total loan principal in penalties.
Getting the license
To get an operating license from UMRA, the applicant must provide UMRA with the following documents;
* A certificate of incorporation
* Forms of particulars of directors and secretary
* Particulars of the address
* Copies of national identity cards for directors and the secretary; and
* Evidence of payment of the fees prescribed in schedule 1 to these Regulations.