Don’t Borrow Beyond Your Repayment Capacity, Don’t Sign Sales Agreements.

The desperation for money has blindfolded many borrowers to sign sales agreements and transfer forms, yet they are supposed to sign loans agreements. This bad lending practice is forcing them to lose their assets to unscrupulous money lenders.

The story of Gubindi, a resident of Jinja who allegedly died after reportedly failing to repay a micro-credit loan of 300000 Shillings he secured from Pride Microfinance Limited is a very sad one.

This story has triggered debate across the microfinance sector. It has also attracted articles in the newspapers the latest being by one Nathan Were, Access to Finance specialist based in Nairobi-Kenya. In his article “No One deserves to die for failing to pay a micro-credit loan “ which appeared in Daily Monitor February 11th, Were raises pertinent issues regarding borrowing money and the crude methods that lenders use to recover from defaulters.

Apparently, Gubindi died in police cells where he was detained after failing to pay a loan of 300000 Shillings he had reportedly secured from Pride Microfinance. Pride Microfinance Limited is regulated by Bank of Uganda.

Unfortunately, the borrower died, and we may not hear his story about the stress, frustrations and depression he went through after securing that loan of 300000 Shillings. 300000 Shillings may sound small but it is a lot to many Ugandans especially when one defaults. The implications of defaulting are such that the interest is compounded and the balance grows exponentially. Many borrowers are currently grappling with compounded interest and some have lost their assets in the process.

This story is not unique to Gubindi.  Uganda Microfinance Regulatory Authority is a regulatory agency with the mandate to Regulate, License and supervise tier 4 Microfinance Institutions and Money Lenders. These institutions include Money lenders, SACCOs, Non Deposit Taking Microfinance Institutions and Self-Help Groups.

The Authority was established after the enactment of the “Tier IV Microfinance Institutions and Money Lenders Act, 2016.   The key ground for its enactment was to ensure the lower pyramid of the financial system is effectively regulated to protect consumers of microfinance services against bad lending practices.

Some of such bad lending practices were the use of sales agreements as opposed to loan agreement where borrowers lost property to unscrupulous Money lenders and Microfinance institutions who abused the market conduct and consumer protection principles.  The other concern is unfair interest rates set by Money Lenders and Non Deposit Taking Microfinance Institutions.  The other bad lending practice was the confiscation of Automated Teller Cards (ATMs) and pin codes by money lenders who would withdraw money from the accounts of the borrowers. This practice is a violation of one of the principles of

The Authority has recorded many complaints regarding unfair interest rates set by Money Lenders and Non Deposit Taking Microfinance Institutions. This has triggered a big conflict between Lenders and borrowers.

After hearing some complaints recorded at the Authority, my observation is such that many borrowers secure loans out of desperation. The desperation is due to pressures to pay school fees, sick relatives, business related complications among others blindfold many borrowers to sign sales agreements instead of signing loan agreements. The practice is so bad so that money lenders do not provide all relevant information regarding the transaction. Some of them simply provide empty sheets of sales agreement without clear information and because of the desperation, borrowers just append signatures, get money and leave.  This is now illegal according to the Tier 4 Microfinance Institutions and Money Lenders Act, 2016.

This Act calls for transparency in the transaction where the borrower and lenders must sign clear loan agreements with clear terms and interest rates. Both parties involved in the money lending transaction must have copies of the loans agreements clearly signed.

Borrowers should carryout self-assessment to evaluate their capacity to absorb and pay back the amount of money they are borrowing from money lenders, Non Deposit taking microfinance institutions and even Credit institutions. The Lenders should also carryout due diligence to evaluate the capacity of borrowers to pay back. This is aimed at preventing ping pong during loan recovery period in the event that the borrower defaults.


Bindhe Edward

Acting Communications Manager


Comments are closed.

%d bloggers like this: