By Spy Uganda
The Government of Uganda has acknowledged that the country’s credit regulatory framework disproportionately favors lenders, exposing borrowers especially those in the informal sector to exploitative practices.
Appearing before Parliament’s Public Accounts Committee (PAC), Secretary to the Treasury Ramathan Ggoobi admitted the imbalance and revealed plans to introduce a borrower-focused information system aimed at improving transparency and consumer protection.
The disclosure came as officials from the Ministry of Finance, Planning and Economic Development responded to queries raised in the Auditor General’s report for FY2024/25.
“We have a credit reference bureau that protects lenders, but there is a gap on the side of borrowers,” Ggoobi told MPs. “We are now developing a mirror system where borrowers can access information about lenders, particularly to address bad practices in the informal Tier 4 space.”
Uganda’s existing Credit Reference Bureaus (CRBs), regulated under the Financial Institutions Act and supervised by the Bank of Uganda, primarily assess borrower creditworthiness to safeguard lenders and maintain financial stability.
However, lawmakers argued that the system offers limited protection against predatory lending—especially by unregulated moneylenders operating under the Tier 4 Microfinance Institutions and Money Lenders Act, 2016.
Legislators painted a grim picture of lending practices affecting both rural and urban communities.
Budadiri West MP Nandala Mafabi highlighted excessive interest rates and upfront deductions: borrowers often receive less than the amount requested but are required to repay significantly more within short periods.
Elgon County MP Ignatius Mudimi described daily repayment demands in some areas, while Kasilo County MP Elijah Okupa noted that similar practices are common in urban markets such as Kalerwe and Nakawa in Kampala.
In response, government plans to introduce a “borrower reference system”—a reverse CRB that would allow individuals to evaluate lenders’ credibility before taking loans.
The reform is part of broader efforts under the National Financial Inclusion Strategy to enhance transparency, promote responsible lending, and strengthen consumer protection.
Analysts say such a system could help curb exploitative practices, improve competition, and formalize segments of the informal credit market.
The PAC session also highlighted the high cost of financial transactions in Uganda, with MPs urging reforms to reduce fees.
Mafabi pointed to Safaricom and its M-Pesa platform as a model for affordable and efficient mobile money services, noting that high transaction charges in Uganda remain a barrier to financial access.
Despite the concerns, Ggoobi defended Uganda’s financial sector performance, citing improvements in inclusion and market depth.
He referenced the Absa Africa Financial Markets Index, which ranks Uganda among the continent’s top performers, and noted that more citizens are now participating in the formal financial system.
Ggoobi also highlighted strong macroeconomic indicators, including record export earnings of $14.4 billion in 2025, stable exchange rates, and controlled inflation.
“We expect economic growth of between 6.5% and 7% this financial year, driven by agriculture, manufacturing, and services,” he said.
The proposed reforms come at a time when many Ugandans still lack access to formal credit, pushing them toward informal lenders.
If effectively implemented, the borrower protection system could improve transparency, reduce predatory lending, and build trust in the financial sector.
However, experts caution that enforcement particularly in the informal market will be critical to ensuring meaningful impact.
