Uganda’s microfinance institutions have been urged to stop irresponsible lending practices and aggressive debt recovery, with regulators insisting that lenders must first establish whether borrowers have the capacity to repay before approving loans.The warning was delivered 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 regulators, government officials, financial institutions and other sector stakeholders to discuss measures for creating a stronger and more sustainable microfinance industry.Tusuubira told participants that changes in the regulatory environment mean lenders can no longer depend on prolonged recovery processes or continuously accumulating charges when customers fail to repay their loans. She said institutions must instead make responsible lending decisions from the beginning.She explained that where a lender advances Shs1 million, the maximum amount recoverable is Shs2 million, regardless of how long the borrower takes to clear the debt.
According to Tusuubira, the requirement should encourage institutions to conduct thorough assessments of customers before releasing money rather than relying heavily on recovery after default.The regulator also revealed efforts to strengthen credit information sharing among Tier IV institutions. The system is intended to help lenders establish whether potential customers already have loans elsewhere, allowing them to identify borrowers who may be taking on more debt than they can reasonably manage.Minister of State for Microfinance Shartsi Musherure said government’s regulatory framework, established under the Tier 4 Microfinance Institutions and Money Lenders Act, is aimed at strengthening the sector while protecting the savings and interests of ordinary Ugandans. She noted that Tier IV institutions play an important role in extending financial services to farmers, market vendors and small entrepreneurs who may struggle to access conventional bank financing.Musherure urged boards and managers to strengthen governance, risk management and staff development while embracing digital systems and working with government to improve access to affordable funding and better sector data. She stressed that financial inclusion should not only focus on increasing access to credit, but also ensuring that the services provided are sustainable and responsible, placing greater emphasis on protecting borrowers while maintaining a stable microfinance sector.
