Tier 4 Microfinance Institutions and Money Lenders Act, 2016

Section Commencement Section This Act shall come into force on a date appointed by the Minister by statutory instrument.

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

Section Purpose of Act Section The purpose of this Act is to regulate tier 4 microfinance institutions by— applying non-prudential standards to tier 4 microfinance institutions by— facilitating the microfinance industry to promote social and economic development; promoting legitimacy and building the confidence of members, customers and investors in the microfinance 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; 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; and. providing a framework for the management and control of money lending business.

Section Classification of tier 4 microfinance institutions Section For the purposes of this Act, tier 4 microfinance institutions shall comprise— SACCOs; non deposit taking microfinance institutions; self help groups; and community based microfinance institutions.

Section Interpretation Section In this Act, unless the context otherwise requires— “ Authority ” means the Uganda Microfinance Regulatory Authority established by section 6 ; “ Board ” means the Board of directors of the Authority ; “ capital ” means paid-in shares, reserves and profits or un­appropriated surplus; “ Central Financing Facility ” means a mechanism established on a co-operative basis in order to facilitate the financial stability of member SACCOs; “ chattels transfer ” means a letter of hypothecation or a hire-purchase agreement; “ committee ” means the governing body of a SACCO to which the management of its affairs is entrusted and includes a Board of directors of the SACCO; “ compulsory savings ” means a sum of money that is obligatory for a borrower to deposit with a microfinance institution as a condition for receiving a loan or as collateral for a loan either as a percentage of the loan or as a nominal amount; “ core capital ” means shareholders’ equity in the form of issued and fully paid-up shares including retained reserves approved by the Authority ; “ currency point ” has the value assigned to it in Schedule 1; “ customer protection ” includes appropriate p...

Section SACCOs to be registered societies and licensed under this Act Section A SACCO shall not carry on the business of financial services unless it is— Subject to subsection (1) a SACCO may carry on the business of financial services if— a registered society ; and licensed under this Act. A SACCO shall provide financial services only to its members. it is operating on a probationary period pending registration under the Cooperatives Societies Act; or it has applied for a licence under this Act.

Section Powers of a SACCO Section A SACCO shall— A SACCO— mobilise and receive savings from members; and borrow in an aggregate amount not exceeding a limit prescribed by the Authority . shall provide loans to its members; may serve as a fiscal agent for and receive payments or deposits from a government body on behalf of the members; may acquire and hold property in trust for its members; may purchase or make available, various forms of insurance or risk management programs for its members, either on an individual or group basis in compliance with relevant laws; and may exercise such powers as may be necessary to enable it to carry out the purposes for which it is established.

Section Supervision of money lending business Section The Authority shall, in the exercise of its function under subsection (1)— The Authority shall regulate and supervise the money lending business. grant, renew and revoke money lending licences; keep and maintain a register of money lenders; sensitize the public about the money lending business; conduct inspection and examination of books of accounts, records, returns, and any other document or premises of a money lending business; and conduct an inquiry into money lending business.

Section Application for a money lending licence Section A money lender does not include— An application for a licence for money lending shall be made in writing to the Authority and shall be accompanied by— A person intending to engage in money lending business shall be a company. a company carrying on the business of banking or insurance; a society registered under the Cooperative Societies Act; or a body corporate, incorporated or empowered by an Act of Parliament to lend money in accordance with that Act. the certificate of incorporation of the company; a resolution of the particulars of the directors of the company; a resolution of the particulars of the secretary of the company; the postal and physical address of the company; and the prescribed fee.

Section Issue of a money lending licence Section A licence issued under this section— The Authority shall, within three months after receiving an application under this section, consider the application and may, if satisfied that the applicant meets the requirements, issue a licence to the applicant. The Authority may issue a licence subject to such conditions as the Authority may consider necessary and may, from time to time, add, vary or substitute the conditions as it deems appropriate. shall expire on the thirty first day of December in every year; shall specify the name under which, and the address at which, the money lender is authorised to carry on business; and shall not authorize a money lender to carry on business under more than one name.

Section Refusal to issue a money lending licence Section The Authority shall not issue a licence for money lending where— the Authority is not satisfied that the shareholders and persons responsible for the management of the company or firm are of good character; the applicant, or any person responsible for the management of a company that is issued with a money lending licence has been convicted of an offence relating to embezzlement or any other financial impropriety; or the applicant has not complied with section 78 (3). Any applicant aggrieved by the decision of the Authority not to grant a licence may appeal to the High Court. Where the application has been rejected, notice of rejection shall be given within 30 days.

Section Annual fee Section The money lender shall pay a prescribed annual fee in respect of the money lending licence. Where the money lender fails to pay the annual fee prescribed under subsection (1), the licence shall be cancelled. The annual fee payable under subsection (1) shall be payable on the issue of a licence and thereafter annually upon application for renewal of the licence.

Section Renewal of a money lending licence Section A money lender may apply for a renewal of a money lending licence. An application for the renewal of a money lending licence shall be made every year in accordance with the regulations made under this Act. Subject to subsection (2), on application duly made for the renewal of a money lending licence, the Authority may renew the licence. The Authority shall not renew a money lending licence where the money lender has violated a provision of this Act or a condition of the licence.

Section Revocation of a money lending licence Section The Authority may by notice in writing revoke a money lending licence if it is satisfied that the money lender— Where the Authority revokes a licence— has not commenced business within twelve months from the date of issue of the money lending licence; ceased to carry on the money lending business for which the licence was issued; furnished to the Authority , information or a document in connection with its application for a licence, which is false or misleading in a material particular; has been declared insolvent; has been wound up; is conducting business in a manner detrimental to the interests of the public; transferred or assigned its licence; or contravened the provisions of this Act. The Authority , shall before revoking a licence, give to the licencee at least fourteen days notice in writing, and shall consider representations made by the licencee before revoking the licence. the Authority shall cause a notice of the revocation to be published in the Gazette and at least one newspaper of wide circulation; and the affected licencee shall, from the date of publication of the notice, cease to transact money lending business....

Section Offences in respect of money lending licence Section A person who— In addition to the penalty under subsection (1) the court may— carries on business as a moneylender without a money lending licence; or carries on business in a name or at any other place other than the name or address specified in the money lending licence, by order suspend a money lending licence; or in the case of a conviction under subsection (1)(a) disqualify that person from engaging in money lending business.

Section Form of money lending contract Section The contract shall take the form of a note or memorandum which shall contain all the terms of the contract and, in particular, shall show— A money lending contract shall be in writing and shall be signed by the money lender and the borrower and shall be witnessed by a third party. the date on which the loan is disbursed; the amount of the principal of the loan; the interest charged on the loan expressed in terms of a percentage per year; the nature of the security, if any; the duties and obligations of the borrower; the mode of repayment; the nature of guarantorship, if any; and the right to early repayment.

Section Prohibition of compound interest and provision as to defaults Section A money lending contract is illegal and unenforceable if it directly or indirectly provides for— the payment of compound interest; or the rate or amount of interest being increased by reason of a default in the payment of sums due under the contract. Where a borrower defaults to pay the sum payable to the money lender on the due date, the moneylender is entitled to charge simple interest on that sum from the date of default until the sum is paid.

Section Money lender to issue receipts and keep records Section Every money lender shall keep a record which shall contain— A money lender shall issue a receipt to a borrower for every repayment made on a loan. The receipt shall be issued immediately after the payment is made. the date on which the loan was disbursed; the amount of the principal ; the rate of interest; and the sum repaid on the loan and the date on which the repayment is made.

Section Powers of court Section Where a money lender applies to court for the recovery of any money lent, or the enforcement of an agreement or security made or taken in respect of money lent, the moneylender shall produce the records referred to in section 87 . Where court is satisfied that a borrower has defaulted in payment of a sum due to the money lender under a money lending agreement and that there is a further outstanding amount under the agreement that is not yet due, the court may determine the contract and order the principal outstanding to be paid to the money lender, with such interest as the court may allow, up to the date of payment. Subsections (1) and (2) shall affect the rights of any bona fide assignee or holder for value without notice.

Section Reopening transactions of money lenders Section Where a borrower or a money lender applies to court for the recovery of money lent or the enforcement of a money lending agreement or security made or taken in respect of money lent, the court may reopen a transaction if it is satisfied that— Where the court reopens a transaction, the court shall take into account the agreement between the money lender and the borrower and may, notwithstanding any statement or settlement of account or any agreement to close previous dealings— the interest charged in respect of the sum actually lent is excessive; the amount charged for expenses, inquiries, fines, bonus, premium, renewals or any other charges, is excessive; the transaction is harsh and unconscionable; or the transaction is such that a court of equity would give relief. relieve the borrower from payment of a sum in excess of the sum adjudged by the court to be fairly due in respect of the principal , interest and charges, as the court, having regard to the risk and all the circumstances, may adjudge to be reasonable; order the money lender to repay the excess sum paid, by the borrower; set aside, either wholly or in part, or revi...

Section Control of interest rates Section 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 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.

Section Money lending advertisements Section A money lender may publish in a newspaper or exhibit at an authorised address of the money lender, a notice which contains- the authorised address at which the money lender carries on business; the particulars of the address at which the money lender carries on business; the address at which the moneylender formerly carried on business; a statement that the moneylender lends money with or without security; and a statement of the highest and lowest sums that the moneylender offers.

Section Penalties for false statements and representations Section A person who by any false, misleading, or deceptive statement, representation or promise, or by a dishonest concealment of material facts, induces or attempts to induce another person to borrow money or to agree to the terms on which money is borrowed, commits an offence and is liable, on conviction, to a fine not exceeding fifty currency points or to imprisonment for a term not exceeding two years or both. Where the offence under subsection (1) is committed by a money lender, the directors, secretary or other officer responsible shall be held liable for the commission of the offence.

Section Notice of assignment of money lenders debts Section Where a debt arising out of money lending is assigned to another person, the assignor, whether he or she is the moneylender , by whom the money was lent or any person to whom the debt has been previously assigned, shall— give to the assignee, notice in writing that the assignment is subject to this Act; and supply to the assignee all information necessary to enable the assignee to comply with this Act. A person who contravenes this section commits an offence and is, liable on conviction, to a fine not exceeding fifty currency points or imprisonment for a term not exceeding two years or both and shall, in addition to the penalty, indemnify any other person who is prejudiced by the contravention. In this section, “assigned” means assigned by any assignment inter vivos other than an assignment by operation of law, and “assignor” and “assignee” have corresponding meanings.

Section Application in respect of assignees Section This Act shall apply in respect of a debt to a money lender arising from money lent after the commencement of this Act or the benefit of any agreement made or security taken in respect of a debt, notwithstanding that the debt or the benefit of the agreement or security may have been assigned and, except where the context otherwise requires, references in this Act to a money lender shall be construed as including an assignee. An agreement with, or security taken by, a money lender in respect of money lent after the commencement of this Act shall be valid in favour of any bona fide assignee or holder for value without notice of any defect due to the operation of this Act and of any person deriving title under him or her. A payment or transfer of money or property made bona fide by a person, whether acting in a fiduciary capacity or otherwise, on the faith of the validity of the agreement or security, without notice of the defect shall, in favour of that person, be as valid as it would have been if the agreement or security had been valid.

Section Repayment of monies by a borrower Section Where a borrower wishes to repay a loan to a money lender and the money lender evades the borrower to the extent that it becomes impossible for the borrower to repay the money lender the borrower may deposit the loan monies with the Authority on behalf of the moneylender and the repayment shall be deemed to have been paid to the money lender. The Authority shall transmit the monies paid under subsection (1) to the money lender.

Section Prohibition of charge for expenses on loans Section An agreement between a money lender and a borrower for the payment of a sum on account of costs, charges or expenses incidental to or relating to the negotiations for the granting of the loan is illegal, and if a borrower pays a sum to a money lender on account of any such costs, charges or expenses, that sum shall be recoverable as a debt due to the borrower or, be off set against the amount actually lent.

Section Penalty for taking promissory note in which the amount is left blank or not truly stated Section A money lender who takes, as security for any loan, a promissory note or other contract for the repayment of money lent in which the principal is, to the knowledge of the money lender, not truly stated, or is left blank, commits an offence and is liable on conviction to a fine not exceeding fifty currency points or to a term of imprisonment not exceeding two years, in the event of a second or subsequent offence, to a fine not exceeding one hundred currency points or to imprisonment for a term not exceeding four years.

Section Savings Section This Part shall not apply— to a money lending transaction where the security for repayment of the loan and interest on the loan is effected by execution of a chattels transfer in which the interest provided for is not in excess of nine percent per year; to a transaction where a bill of exchange is discounted at a rate of interest not exceeding nine percent per year; or to a money lending transaction where the security for repayment of the loan and interest on the loan is effected by execution of a legal or equitable mortgage upon immovable property or of a charge upon immovable property or of any bona fide transaction of money lending upon such mortgage or charge. The exemption provided for in this section shall apply whether the transactions referred to are effected by a money lender or not. A person who lends money only by means of the type of transactions set out in subsection (1) and by means of no other type of transaction shall be deemed not to be a money lender for the purpose of this Act.

Section Financial stabilisation Section The Authority shall issue operational guidelines to assist a self help group to establish financial stabilisation mechanisms for purposes of providing compensation to the members.

Section Governance and management Section For purposes of subsection (2), the committee shall— The responsible officer shall submit to the Authority , within one month after the end of each financial year— A self help group shall comprise members with a common bond. The self help group shall form among themselves a governance committee which shall be responsible for the day-to-day management of the self help group. convene meetings; and keep records and books of accounts of the self help group. a copy of the register of self help groups; and an annual report on self help groups in the district.

Section Self help groups Section A self help group shall— A responsible officer in a district shall— A self help group shall be registered for the purpose of developing the economic interests of the group members and may provide services including— mobilise and manage its own savings; provide interest bearing loans to its members; offer a limited form of insurance to its members; share out member equity at least once a year in proportion to the savings; and be timebound. register a self help group in the prescribed form; and maintain a register of self help groups. savings and credit; revolving fund; fundraising; rotational group farming; or barter trade.

Section Operation of commodity based microfinance Section For the purpose of this section— “commodity based microfinance” means the provision of microfinance services in the form of goods and services; “recipient” means a person selected to receive a commodity.

Section Selection of recipient Section The selection of a recipient shall be guided by— A responsible officer shall organise a meeting to select a recipient of a commodity. transparency and participation of the stakeholders; equity and spatial distribution; and access to or ownership of land and other factors of production. A recipient of a commodity shall not use that commodity for a purpose other than income generation.

Section Prohibition on use of commodity Section A recipient of a commodity shall not, except with the approval of the Authority — liquidate the commodity acquired; or assign or transfer the commodity. A recipient who contravenes subsection (1) commits an offence and on conviction, is liable to a fine not exceeding twenty five currency points or a term of imprisonment not exceeding one year or both.

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 proposed dealings and transactions in islamic microfinance shall be in accordance with Shari’ah; a nominee to be appointed as a Shari’ah advisor ; the modes of finance and product structures proposed to be used for raising resources and extending financial assistance to the clients; a Shari’ah compliance mechanism; a method of segregating the islamic microfinance business from the conventional microfinance business; or any other information that the Authority may require. The Authority shall consider the application and may, if satisfied that the applicant meets the requirements, grant an approval to the applicant to offer islamic microfinance products and services. The Authority may withdraw the approval granted under subsection (3) if the Authority is satisfied that the applicant made a material misrepresentation or concealment of information.

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

Section Application of Cooperative Societies Act Section The Cooperative Societies Act shall apply to a SACCO in respect of— The Cooperative societies Act, shall not apply to SACCOs regulated under this Act except as expressly provided by this Act. governance of a SACCO; investment of funds; dividends or bonus; Reserve Fund ; Share Transfer Fund ; and contribution to the Education Fund . Where the Cooperative Societies Act requires that an act be done by the registrar, that act shall for purposes of subsection (2), be done by the Authority .

Section Amendment of the Micro Finance Deposit Taking Institutions Act, 2003 Section The Micro Finance Deposit Taking Institutions Act, 2003 is amended— in section 7, by inserting the following new subsections— “(1a) A registered society which intends to provide financial services among its members shall apply in writing to the Bank of Uganda for a licence if— the voluntary savings of the registered society are in excess of one billion five hundred million shillings; and An application under subsection (1a) shall be accompanied by— in section 2, by inserting immediately after the definition of ‘person’ the following— “registered society” means a cooperative society registered under the Cooperative Societies Act;” in section 4 (1), by inserting the words “or registered society” immediately after the word “company”.; the institutional capital of the registered society is above five hundred million shillings. a copy of a certificate of registration issued under the Cooperative Societies Act; evidence that the registered society meets the minimum equity requirements prescribed under section 47; information on the prospective place of business, indicating the head office and branches; e...

Section Offences Section A person who, with intent to deceive, or mislead in any book, record, report, statement or other document relating to the business affairs, transactions property, assets, liabilities or accounts of a tier 4 microfinance institution — makes a false entry knowing it to be false, or causes such an entry to be made; omits an entry or causes an entry to be omitted; or alters, abstracts, conceals, removes or destroys an entry, or causes an entry to be altered, abstracted, concealed, removed or destroyed,

Section Regulations Section Without prejudice to the general effect of subsection (1), the Minister may make regulations for— Regulations made under this section may prescribe in respect of a contravention of the regulations— The Minister may make regulations for the better carrying into effect of the provisions of this Act. the fees to be paid for a licence issued under this Act; the terms and conditions for renewal of a licence; the minimum holdings of liquid assets in relation to its members’ deposits; the conditions for lending; minimum equity requirements; risk management for Non Deposit Taking Microfinance Institutions. the operation of self-help groups; the operation of commodity-based microfinance; money lending; and accounting and financial reporting. a penalty not exceeding a fine of forty eight currency points or imprisonment not exceeding two years or both; in the case of a second or subsequent contravention, a fine not exceeding ninety six currency points or imprisonment not exceeding four years or both; in the case of a continuing contravention, an additional penalty not exceeding ten currency points in respect of each day on which the offence continues; and may also...

Section Repeal of the Money Lenders Act, Cap. 273 Section The Money Lenders Act is repealed.

Section Transitional provisions Section A tier 4 microfinance institution , which at the commencement of this Act, is carrying out business to which this Act applies shall, within twelve months from the date of commencement of this Act, apply for a licence under this Act. A money lender who, prior to the coming into force of the notice prescribing a maximum interest rate, may have entered into a money lending agreement with a borrower which provides for an interest rate that is higher than the prescribed maximum interest, shall comply with the notice within three months after the issue of the notice.