Tier 4 Microfinance Institutions and Money Lenders Act, 2016

The Act comes into force on a date appointed by the Minister by statutory instrument.

This Act applies to tier 4 microfinance institutions and to money lenders; it does not apply to microfinance business conducted by institutions regulated by the Central Bank except as otherwise provided.

States that the purpose of the Act is to regulate tier 4 microfinance institutions and provide a framework for microfinance and money‑lending, including standards, safeguards and mechanisms to prevent fraud and protect depositors.

Tier 4 microfinance institutions comprise SACCOs, non-deposit-taking microfinance institutions, self-help groups, and community-based microfinance institutions.

Provides definitions of terms used in the Act (Interpretation).

A SACCO must not carry on financial services unless it is a registered society and licensed under this Act; SACCOs may carry on financial services if those conditions are met; SACCOs must provide financial services only to their members; limited probationary or application-for-licence situations are referenced.

A SACCO must mobilise and receive savings from members, may borrow subject to an Authority-prescribed limit, must provide loans to members, and may perform various functions (fiscal agent, hold property in trust, offer insurance/risk programs) and exercise necessary powers to carry out its purposes.

The Authority shall regulate and supervise the money lending business.

Persons intending to engage in money lending business must be a company.

The Authority must consider an application within three months and may issue a licence if requirements are met; the Authority may attach and vary conditions; licences have specified features and expire annually.

The Authority must not issue a money lending licence where it is not satisfied about the character of shareholders/managers, where specified convictions for financial impropriety exist, or where the applicant has not complied with section 78(3).

The money lender must pay a prescribed annual fee for the money lending licence.

A money lender may apply to renew a money lending licence; the Authority may renew licences on duly made applications but must not renew if the money lender has violated the Act or licence conditions.

The Authority may revoke a money lending licence on specified grounds and must give at least 14 days' written notice, consider representations, publish the revocation, and the affected licencee must stop business from publication; the licencee may appeal to the High Court.

It is an offence for a person to carry on business as a moneylender without a money lending licence or to carry on business under a different name or address than that specified in the licence; the court may, in addition to penalties, suspend the licence or, on conviction under subsection (1)(a), disqualify the person from engaging in money lending.

A money lending contract must be in writing, signed by the money lender and the borrower, and witnessed by a third party; it must contain specified terms such as disbursement date, principal amount, interest rate per year, security, borrower duties, repayment mode, guarantorship and right to early repayment.

A money lending contract is illegal and unenforceable if it provides for compound interest or increases interest because of a default; if a borrower defaults the moneylender is entitled to charge simple interest from the date of default until paid.

Every money lender must keep prescribed loan records and must issue a receipt to a borrower for every repayment, issued immediately after payment.

Moneylender must produce the records referred to in section 87; court may determine the contract and order payment of principal and interest where a borrower defaults; subsections (1) and (2) affect rights of bona fide assignees or holders for value without notice.

A court may reopen money‑lending transactions it considers excessive, harsh or unconscionable and may grant relief, adjust securities, order repayments, and require production and endorsement of the lender’s licence; the court must take the agreement into account and transmit endorsed licence copies to the Authority.

The Minister may prescribe a maximum interest rate by Gazette notice; money lenders must charge no more than that rate and committing a breach is an offence with fines and possible licence cancellation and repayment.

A money lender may publish or exhibit a notice, and that notice must contain specified address details, a statement whether lending is with or without security, and a statement of the highest and lowest sums offered.

Making false or deceptive statements to induce another to borrow money is an offence punishable by a fine up to fifty currency points, imprisonment up to two years, or both; if committed by a money lender, responsible officers are liable.

When a money-lending debt is assigned, the assignor must give the assignee written notice that the assignment is subject to the Act and must supply the assignee with all information needed for compliance; contravention is an offence with specified penalties.

The Act treats references to a money lender as including an assignee and makes agreements or securities given after commencement valid in favour of bona fide assignees or holders for value without notice; bona fide payments made without notice are valid as if the agreement were valid.

If a borrower cannot repay because the money lender evades them, the borrower may deposit the loan monies with the Authority on behalf of the moneylender, and that deposit is treated as repayment; the Authority must then transmit those monies to the money lender.

An agreement requiring a borrower to pay sums for costs, charges or expenses connected with negotiating a loan is illegal; any such payments are recoverable by the borrower or may be set off against the loan.

A money lender who takes as security a promissory note or contract where the principal is left blank or not truly stated commits an offence and faces fines or imprisonment.

Certain specified transactions are exempted from this Part, and a person who lends only by those transactions is deemed not to be a money lender under the Act.

The Authority must issue operational guidelines to help a self help group establish financial stabilisation mechanisms to provide compensation to members.

Responsible officers must submit a register copy and an annual report to the Authority within one month after each financial year; self help groups must have members with a common bond and form a governance committee; the committee must convene meetings and keep records and books of accounts.

Requires self help groups to register to develop members' economic interests; allows them to provide listed services; requires district responsible officers to register and keep a register.

Defines “commodity based microfinance” as provision of microfinance services in goods and services, and defines “recipient” as a person selected to receive a commodity.

A responsible officer must organise a meeting to select a recipient of a commodity; a recipient must not use the commodity for purposes other than income generation.

Recipients of a commodity are prohibited from liquidating, assigning, or transferring the commodity except with the approval of the Authority.

Section Islamic microfinance Section An application under subsection (1) shall be accompanied by— A tier 4 microfinance institution that intends to operate islamic microfinance shall apply to the Authority for approval. proof that the

The Insolvency Act, 2011 and the Companies Act, 2012 shall apply, with necessary modifications, to receivership and liquidation of a tier 4 microfinance institution.

The Cooperative Societies Act shall apply to a SACCO in respect of specified matters; it shall not apply to SACCOs regulated under this Act except as expressly provided; acts required of the registrar under the Cooperative Societies Act shall be done by the Authority for purposes of subsection (2).

A registered society that intends to provide financial services among its members must apply in writing to the Bank of Uganda for a licence if its voluntary savings exceed one billion five hundred million shillings and its institutional capital is above five hundred million shillings.

It is an offence for a person, with intent to deceive or mislead, to make, omit, alter or destroy entries in records of a tier 4 microfinance institution.

The Minister may make regulations to implement the Act and prescribe matters including fees, licence renewals, prudential requirements, sectors of microfinance and related operations; regulations may prescribe penalties for contraventions including fines, imprisonment, additional daily penalties and forfeiture.

The Money Lenders Act is repealed.

Tier 4 microfinance institutions doing applicable business when the Act begins must apply for a licence within twelve months; money lenders with pre-existing loans charging above a new prescribed maximum must comply with that notice within three months of its issue.