What the Public Should Know About Non Deposit Taking Microfinance Institutions.

Non-Deposit Taking Microfinance Institution means a company or a non-government organization licensed to carry out money lending business under section 62 of the Tier 4 Microfinance Institutions and Moneylenders Act, 2016;


Although there is a thin line between Money Lenders and Non Deposit Taking Microfinance Institutions in terms of licensing requirements and regulations, the two institutions can be differentiated as below;


  1. Non Deposit Taking Microfinance Institutions (NDTMFIs) are more driven by social mission evidenced by  providing loans at low interest rates in comparison to money Lenders


  1. Most NDTMFIs are operated by Non-Governmental organizations/ companies which have other social objectives/ services under their incorporations which is not the case for Money Lending Companies


  • NDTMFIs have bigger organizational structures and operate many branches in comparison to Money Lenders


  1. Non Deposit Taking Microfinance Institutions also have more advanced Management Information Systems in comparison to Money Lenders.
  2. Most Non Deposit Taking Microfinance Institutions’ ownership is of foreign origin (owned by non-Ugandans) in comparison to Money Lending Institutions.


Whereas NDTFIs are licensed to carry out lending activities, they are restricted from taking deposits or savings unless the savings are taken as loan insurance fund.


Uganda Microfinance Regulatory Authority advises the Public to deposit their money with the institutions that are licensed to so, for purposes of safety and protection of the deposits or savings.


There have been complaints in which people lost their savings with some institutions licensed to transact Money lending as non-deposit taking microfinance institutions but ended up tricking their unsuspecting customers to open up investment accounts.


The Authority has learnt from some of the victims that the institutions promised them huge monthly interests ranging from 30% to 45%. However, after months of intermediating customers’ savings they could neither pay the promised interest nor the money they fixed with the institutions.


The Authority is also warning the public against transacting in crypto currency through Non deposit taking Microfinance institutions because it has no legal basis here in Uganda. The public is therefore advised to avoid it.

Qn. 1. What the public Must know about Moneylending business in Uganda?

A moneylending business should be a company registered with Uganda Registration Services Bureau (URSB) and licenced by Uganda Microfinance Regulatory Authority (UMRA) in accordance with the Tier 4 Microfinance Institutions and Moneylenders Act, 2016.

  1. In moneylending business, the moneylender should have a postal and physical address of the company (Form 18).


  1. A Money lender shall issue a receipt to a borrower for every repayment made on a loan and keep records for a period of 10 years.


  • A moneylender should give a loan agreement to a borrower to sign not a sales agreement.


  1. A money lender shall not dispose off any collateral given by a debtor as a sale, pledge or collateral for the loan advanced to him, unless 60 days have passed since a written demand notice has been issued to the debtor requiring him or her to pay any outstanding monies on the Money advanced.



  1. A money lender may, before carrying out a sale of collateral by public auction or private treaty, undertake a valuation and obtain a forced sale value of the collateral to determine the market value of the property.


  1. A borrower shall retain the right to pay any outstanding monies and costs to redeem the collateral before it is disposed off.


  • Where a moneylender takes possession of collateral under a money lending agreement, he or she is under a duty to exercise the same care and diligence over the collateral in his or her custody as would a prudent owner do with the property.


  • Where collateral in possession of a money lender is lost, damaged or destroyed, the moneylender shall be liable to pay the value of the collateral, or the replacement value of the collateral, after deducting the amount of the principal and interest if any, outstanding within a reasonable time.
  1. A borrower may, at any time upon request made in writing to the moneylender, access information from the moneylender.


Qn.2.  What are the Regulatory do’s and don’ts for Moneylending?

The Tier 4 Microfinance Institutions and Money Lenders Act 2016 was rightly enacted to provide in part for the management and Control of Money Lending Businesses. The Act repealed the Money Lenders Act Cap 273, which required moneylenders to apply for a Money Lending License from the Chief Magistrate’s court.


The Act created the Uganda Microfinance Regulatory Authority (UMRA) under section 6 as a body corporate with perpetual succession and a common seal with functions among others to regulate, License and supervise the money lending business in Uganda.


The Regulatory Do’s for Moneylending;

  1. An individual or Company incorporated in Uganda and carrying out moneylending business can apply for a license.
  2. The entity seeking a moneylending license from the Authority must be a legal entity with an established office.
  • A licensee shall display the license at all the premises where moneylending is transacted.
  1. A license shall expire on the 31st of December in every year and may be renewed annually upon application to the authority.
  2. Furnish the borrower with a copy of the loan agreement including all fees.
  3. Display interest charges at all times at the premises where moneylending business is conducted.
  • Keep and maintain records including proper books of accounts, a cash book, ledger, register of securities register of debtors in a form that the Authority may require.

The Regulatory Don’ts for Moneylending?

  1. A company shall not operate a moneylending business without a license.
  2. A money Lender shall not take National ID, passport, warrant card, or other documents establishing the identity or nationality of the holder,

Bank savings, ATM Cards and security codes for the ATM cards as collateral for money borrowed.

  • Charging exorbitant and compound interest rates on loans.
  1. Borrowers should not sign sale’s agreements for accessing credit facilities instead of loans agreements.
  2. Borrowers should not sign transfer documents in favour of the lender as part of the security for accessing credit.
  3. A moneylender is not authorized to carry on business under more than one name.
  • A moneylender shall not take client deposits.
  • A license issued is not transferable or assignable.


Qn.3. What should borrowers look out for when they need to borrow money?

  1. The borrower should find out the right Money lender to borrow from i.e. the Money lender should be licensed by Uganda microfinance regulatory Authority (UMRA).
  2. The borrower should know on the computation of interest rates charged on a loan by a money lender and also disclose the method of calculating the interest rates.
  • The borrower will need the moneylender to publish and disclose the charges and transaction fees in conspicuous manner prior to entering the money lending agreements.
  1. The borrower needs to sign money lending contract which contains the following.


(a) The date on which the interest on the principle is payable.

(b) The interest computed on the monthly outstanding balance of the principal.

(c) The frequency of instalments to be paid.

(d) The right to redeem the collateral before it is disposed off.

(e) The chargeable fees for the loan transaction.

(F) The charges for late repayment.

(j)  The conditions under which collateral for the loan may be sold.

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