Stop cheating clients, minister urges institutions

Kampala.

The minister for Microfinance, Mr Kyeyune Haruna Kasolo, has warned microfinance institutions to stop cheating the general public by charging very high interest rates on loans.

Over the past two decades, institutions that make micro-loans to low-income borrowers in Uganda, developing and transition economies alike have focused increasingly on making their operations financially sustainable by charging interest rates that are high enough to cover all their costs. This, in the process, has hurt their borrowers as they cannot expand the enterprises they borrowed for.

Addressing members of Association of Microfinance Institutions of Uganda (AMFIU) at their head office in Najjanankumbi last week about new the law in place which regulates the tier four microfinance institutions (MFIs), Mr Kasolo said MFIs are cheating people and they must stop it.

“Some of you have opted to cheat your own clients by charging high interest rates. Besides the high interest rates, there are other charges the microfinance institutions are charging their clients,” he said.

An interest charged represents money taken out of clients’ pockets, and it is unreasonable if it not only covers the costs of lending but also deposits “excessive” profits into the pockets of an MFI.
Interest rates in Uganda are relatively high in commercial banks but in the MFIs are higher than the ones banks charge.

“If your clients have no money, your business (MFIs) will collapse because they will have no money for investment and for paying back the loans,” Mr Kasolo said; adding: “We must emphasise the point of inculcating a saving culture of our people because they don’t save. And when they don’t save, you have no business in this country as microfinance institutions.”

During the meeting, leaders of the MFIs asked for government support and enable them progress with their business of money lending to general public.

“My support for you is there. But once you continue to cheat our people, I will not support you. The law is now in place regulating the activities of microfinance institutions,” Mr Kasolo warned.
AMFIU president Mr Wilson Twamuhabwa, said the AMFIU membership is spread throughout the country with 104 ordinary members (financial institutions) operating in 90 districts, with a network of 711 branches as of December 2015.

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