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The barrage of Private Money Lending in Uganda: The need for Reform of the Law
THE BARRAGE OF PRIVATE MONEY
LENDING BUSINESS IN UGANDA: THE NEED
FOR REFORM OF THE LAW.

By

KYEYUNE ALBERT COLLINS1

Legal loan sharks are clever, modern and should be tightly regulated.
Until a year ago, I knew nothing about payday loans. Of course, I had
heard about loan sharks and I knew of the murky underworld where
desperate people seeking immediate cash could get it quickly from back
street dealers. I also knew that if you did not repay your loan,
persuasive people with black gloves and baseball bats would come
round and make you an offer you could not refuse2.

1.0 Abstract:

1
LL.M (MUK), LLB (Hons) (UCU), Dip. LP. (LDC-Kampala). Advocate and Solicitor of the Courts of
Judicature and subordinate courts in Uganda. Senior Partner, Mukiibi & Kyeyune Advocates & Part-time
Advocate, Public Interest Law Clinic (PILAC) - Makerere University- Faculty of Law.
2
By Parry Mitchell, a shadow business minister in the House of Lords, 15th November 2012Extracted from
http://www.progressonline.org.uk/category/sections/section-progress-magazine. Accessed on the 2nd March
2013.

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The barrage of Private Money Lending in Uganda: The need for Reform of the Law
Private money lending is an indispensable and lucrative business device in Uganda as it is
elsewhere in the world. Money lending is legal in Uganda, but theoretically constrained by
the provisions of the Money Lenders Act of 1952, laws of Uganda. This act requires money
lenders to obtain a certificate from the magistrate who has jurisdiction over their area and a
License from their authority annually. Money lenders are subject to other conditions within
the Act but those conditions are consistently ignored: Money lenders seldom apply for a
license; consistently exceed the interest rate ceiling, impose oppressive terms, use shrewd
methods to ensure repayment and rarely keep anything resembling proper records. Relatedly
most of money lender’s loans are granted not through contracts but through sales agreements
for the undervalued customers’ properties offered as collateral. This practice has often
deprived the innocent consumers (borrowers) of their valuable properties.

It is surprising yet true that at the onset of the money lenders’ practice rift with vast abuses,
there is no clear regulatory body under the Money lenders Act, 1952, regulating the business
and practice of money lending in Uganda.

The focus of this article is the case for the regulation of the private money lenders in Uganda
within the Money Lenders Act, 1952. The article specifically addresses whether the available
legal framework is sufficient and robust enough to address the challenges inherent in the
money lending transactions. The article argues a very strong case for reforming the Money
Lenders Act to ensure that private money lending is regulated to minimize the rate at which
loan sharks fleece borrowers. Before that, it is however, proposed to examine albeit briefly,
the evolution of the regulation of the business of money lending. The article ends with
recommendations for reform and/or review of the money lenders Act, 1952.

1.1 General Introduction:

General histories of the middle ages and, even more specialized ones such as those on
medieval commerce say two things about Jews; they were “usurers” and they engaged in the

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The barrage of Private Money Lending in Uganda: The need for Reform of the Law
slave trade. One of the oldest Christian accusations against Jews in the medieval period was
indeed that of “Usury”.3 If by “usury” we accept the canon law definition of any profit
whatever, then Jews were of course usurers; but the modern understanding of the term is
rather the taking of excessive interest, and to avoid that argument, and the pejorative
connotations of the term, “money lending” is used in this era.

Biblical law forbids taking or giving interest to “your brother’ (a fellow Jew) whether money
or food or “anything”. The Bible in Exodus 22:25 ESV says that, “if you lend money to any
of my people with you who are poor, you shall not be like a money lender to him and you
shall not exert interest from him.”

From the foregoing biblical quotations it is evident that the business of money lending and
the status of the money lender have always been regarded in the eyes of the law and of the
public in the same benign light as they are today4.

Practically when one ventures into the cause of the rise in the business of money lending
today, the seemingly traditional conclusion is most likely to be that ‘money is necessary for
the facilitation of virtually everything in Life.’ As a result, everybody seeks it, sometimes
desperately. Those who cannot get it legitimately devise other means to get it illegitimately
irrespective of the cost or consequence which gives it the added, but unenviable status of
being the root of all evil.
1.2 Historical Background.
Laws regulating the lending of money have existed for thousands of years. 5 Money lending,
originally called ‘usury’ attracted great moral disapproval by ancient authorities particularly

3
See: the history of the main commercial occupation of Jews in Christian Europe, money lending. It is reprinted
with permission from Medieval Jewish civilization: An Encyclopaedia (Roulldege), by Norman Ruth: Extracted
from http: ww.myjewishliving.com/history/ancient.
4
In comparison Islamic religion prevents believers from dealings that involve usury or interest (Riba). In the
same premise the best known feature of Islamic banking is the prohibition on interest. The Qur'an forbids the
charging of Riba and there is now a general consensus among Muslim economists that Riba is not restricted to
usury but encompasses interest as well. The Qur'an is clear about the prohibition of Riba, which is sometimes
defined as excessive interest. "O You who believe! Fear Allah Almighty and give up that remains of your
demand for usury, if you are indeed believers." Muslim scholars have accepted the word Riba to mean any fixed
or guaranteed interest payment on cash advances or on deposits. Several Qur'anic passages expressly admonish
the faithful to shun interest. Sourced from http://www.parvez-
video.com/islam/reformation/principle_islamic_banking/index.asp, accessed on the 7th March 2013.
5
R. M. Gorde, “The Legal Regulation of lending in: A.L Diamond (ed.) Instalment Credit (London: Stevens &
Sons, 1970) P.45.

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The barrage of Private Money Lending in Uganda: The need for Reform of the Law
by the early Jewish and Roman authorities. Usury was seen by the church as an offence
against Ecclesiastical law as the Bible clearly condemns it thus:

“If you lend money to any of my people who are in need, do not charge interest as money
lenders would. If you take your neighbour’s cloak as security for a loan, you must return it
before sunset.”6

Usury simply put is the lending of money usually by individuals for profit. 7 The profit is
usually by way of high interest not charged on the amount given. The practice was widely
detested, save for those who had need of it, as it was considered exploitative. Aristotle
criticizing the practice of usury stated as follows;

“Usury is most reasonably detested, as it is increasing our future by money itself, and not
employing it for the purpose it was originally intended, namely exchange…. whence of all
forms of money-making it is most against nature.8”

In England under the early medieval common law, it was unlawful for any Christian to
charge interest on a loan of money. Not only was it unlawful but it was sinful in the eyes of
the church and punishable by the then very powerful authority.9

Any person who charged interest on a loan of money was classed a usurer and his trade
considered utterly unacceptable. Only the Jews, under Royal protection were permitted to
charge interest on a loan of money, and by the end of the Nineteenth century even they were
forbidden to do this and expelled from the Kingdom10. However, throughout the middle ages
notwithstanding the severe penalties imposed, both legal and spiritual, various ways were
found to circumvent the law. And eventually in the sixteenth century inability to enforce the
prohibition of charging interest against money lenders was enacted and interest up to 10%
could be charged on a loan of money.

6
See Exodus 22:25-26, see also Leviticus 25:35-37.
7
For similar definitions. See Bryan Garner. Ed. Black’s Law Dictionary, 7 th Edition (St. Paul, Minn: West
Group, 1999) P.1543 and Jonathan Gowther. Ed., ed. Oxford Advanced Learners Dictionary (Oxford:
OUP.1998)P.1316
8
Politics, Book 1, Chap. X. Translated by William Ellis (Everyman d) P.19
9
See, “Money Lending” at www. 1911 encyclopedia.org:accessed 02/01/2011 C 8/01/ 2012
10
Ibid

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The barrage of Private Money Lending in Uganda: The need for Reform of the Law
From time to time, throughout the following centuries, various laws were passed in an
endeavour to control the rate of interest. A money lender was permitted to charge interest:
and as well might be expected, numerous ingenious devices were employed by those engaged
in the practice to escape the consequences of the law.

Ultimately, by the Usury Laws Repeal Act, 1854, all existing laws against usury were
repealed and from then until the passing of the English Money Lenders Act 1900, there were
no controls in England on interest rates or on the lending of money generally. The only
protection that remained was that provided by the court of chancery11.

It goes without stating that the philosophy underlying the enactment of the Money Lenders
Act in 1900 has been expressed thus:
“The Money Lenders Act 1900 was enacted as the result of the report of a House of
Commons Select Committee on money lending….which revealed the existence of senior
abuses on the part of those conducting money lending businesses….12”

The Act required registration for money lenders and allowed the court to dissolve “unfair”
money lending agreements. The 1900 Act was replaced by the Money Lenders Act 1927. The
1927 Act imposed more stringent conditions. It required licensing as well as registration. It
also prohibited canvassing, unsolicited advertisement and the use of agents, among other
things. These restrictions affected business adversely and this brought about the development
of hire purchase: an arrangement under which a person rather than by an item outright, could
obtain (hire) it, use it and make periodic payments for such use while having the option to
either purchase it or return it in accordance with an agreement.13

1.3. The Origin of Private Money Lending in Uganda.

Private money lending is not a new phenomenon in Uganda. It has been a common business
practice by a considerable number of Ugandans and Asians of Ugandan origin for quite a
number of years.

11
Ibid
12
R. M. Goode. OP. Cit., P.51
13
See, “Consumer Credit Act” and www.en.wikipedia.org:accessed on the 18/04/2011.

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The barrage of Private Money Lending in Uganda: The need for Reform of the Law
In Uganda, money lending business is regulated under the Money Lenders Act of 1952. Just
like many other laws of Uganda, the Money Lenders Act is a replica of the first Money
Lenders Act of England. Although this Act has been in existence since 1952, it has not much
been in operation as many people have continued to conduct their money lending business in
its utter violation.

It is also important to note that the mother Act of England has been amended several times
until recent amendment of 2006. In Uganda, despite the rapid economic growth, population
increase and a boast in investment and borrowing trends, the 1952 Act has been in place for
now 61 years and the same has never been amended something which has made it redundant.

A critical analysis of the Money Lenders Act reveals that the only strict requirement therein
is for a money lender to have a license but there is no strict control. That is why the smaller
business community has often lost and/or with no option surrendered their valuable property
to loan sharks because their lending rate can go as high as 40% per month amidst loopholes
in the law.

2.0 Who is a Money Lender?

From what has been said so far, a money lender ought to be understood from the point of
view of a person who gives out money to individuals as a business and for the purpose of
making a profit. But as it is to be revealed, certainly not every person that lends money is a
money lender within the meaning of the Act. Our Act is in pari materia with the English
money Lenders Act, 1900.

Farwell J., while commenting on that Act in Litchfield vs. Dreyfus [1906] 1 KB 584 at 588-
58914 observed, and I agree:
“…a man who carries on business as a money lender, and is not registered under the
[English] Act …cannot recover. But not every man who lends money at an interest carries
on the business of money lending. Speaking generally, a man who carries on a money
lending business is one who is ready and willing to lend all and sundry, provided that they
are from his point of view eligible.”

Cited in the Ugandan case of Ecumenical Church Loan Fund (v) Ecloff Vs. John Buliza & Ors, H.C.T-00-CC-
14

CS-064 of 2004 before, Hon, Mr. Justice Yorokamu Bamwine.

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The barrage of Private Money Lending in Uganda: The need for Reform of the Law
A similar definition was given, again by the Court of Appeal of Nigeria in the case of Veritas
Insurance Co. Ltd vs. Citi Trust Investment Ltd, where the court stated on the meaning of
the money lender, that:
“… Any person who lends a sum of money in consideration of a larger sum being repaid is
deemed to be a money lender until the contrary is proved…”

Section 1 (h) of the Money Lenders Act, Cap 273, provides that:
Money lender includes every person whose business is that of money lending or who
advertises or announces himself or herself and holds himself or herself out in any way as
carrying on that business whether or not that person also possesses or earns property or
money derived from sources other than the lending of money and whether or not that person
carries on the business as a principal or agent but shall not include15:
i. Any person bonafide carrying on the business of banking or insurance as bonafide
carrying on any business not having for its primary object the lending of money, in
the course of which and for the purpose of which he or she lends money;
ii. Any society registered under the Cooperative Societies Act;
iii. Any body corporate, incorporated or empowered by a special Act to lend in
accordance with that Act;
iv. Any person or body corporate exempted from this Act by order of the Minister.

The preceding definition is not only elastic, but somewhat ambiguous as it represents that
every and all persons can be a money lender just so long as a person indulges in lending
money as a form of business or advertises or holds himself out as carrying on the business of
money lending. This rises the vital question as to whether the situation will be the same
irrespective of whether such a person obtains a licence in accordance with the law or not. It
would appear that unless a person holds a valid money lenders licence he would not qualify
as a money lender as such a licence is a prerequisite to becoming one.

Besides, the provision also creates a very good avenue to those masquerading as money
lenders to avoid liability and/or claim that they are actually money lenders respectively. I
draw the justification from the fact that in almost all articles and memorandums of
companies, the promoters include money lending as one of the objectives of the company.
Thus if the company whose objectives clause is say export and import trade lends money to a
15
See, Section 1(h) of the Money Lenders Act, Cap. 273, Laws of Uganda.

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The barrage of Private Money Lending in Uganda: The need for Reform of the Law
desperate borrower at an exorbitant interest, and the matter ends up in court, the said
company will rely on the definition of “who is a money lender” to claim that it is actually a
money lender because it has such a clause in its Articles and memorandum of Association.

It is important to note that over the last century, courts have laboured with setting the
standard for determining what “a primary object” is and until today, we do not have a settled
law.

It is also important to note that the money lenders law, beyond regulating the certainties of
licensed money lenders, also regulates the activities of persons other than money lenders who
lend money on interest. This is sanctioned by the provision of Section 1 (h) of the Money
Lenders Act, which recognises the fact that, “ every person whose business is that of money
lending and who advertises or announces himself or herself or holds himself or herself out in
any way as carrying on that business of money lending…16”

In the Nigerian case of Ojikutu vs. Agbonmagbe Bank Ltd17, it was held that the expression
“persons other than money lenders” covers human persons (not institutions such as banks)
who do not make money lending their regular business, but who may be involved in a single
or occupational transaction of money lending. In other words, these are not money lenders,
but where they give out loans which are often regarded as friendly loans, and charge interest,
they must be bound by the provisions of the law relating to interest charging.

In the case of Investment Masters vs. Abrose Kangure HCCS No. 312 of 2005, unreported
but cited in the case of Noel Nuwe Kyapaka vs. Phillip Ronald Baguma & Peter
Mukiiza18, Hon Justice Geofrey Kiryabwire, in his judgement observed thus;
“My learned brother Bamwine J., held that not everyone who lends money is a money lender
within the meaning of the Money Lenders Act. In that case the learned judge found that court
cannot raise an inference that a person is a money lender if it is not pleaded as such. It
would appear on the evidence before me that the plaintiff took a personal risk and lent the
first defendant money. I have already found that it should be paid back and I so order that
this be done without further delay within 45 days of the Judgement. As to whether the

16
Ibid.
17
(1966) NCHR 246
18
Commercial Court Division, Civil Suit No.1 of 2007

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The barrage of Private Money Lending in Uganda: The need for Reform of the Law
plaintiff is entitled to sell and foreclose the said properties to realise the sum owed to him, I
say no.”

The analogy drawn from the Judge’s conclusion above is that a person who is not a money
lender within the meaning of the Act, who lends out money, takes a risk, but that does not
deprive him of the right to get back his money, the limitation he bears is that he is precluded
from selling the security on the loan to realise the sum owed to him and he is only entitled to
interest as long as court exercises its discretion to grant the same. As indicated earlier, the
object of this article is to examine, the adequacy of the Money Lenders Law and whether it
effectively protects the consumers (borrowers) without an established regulatory body.

5.0 Regulation of Money Lending Business.

A major complaint against money lending at the early stages of its practice is that it was not
regulated. All manner of persons got involved in the business, extremely high interest was
charged and the borrowers were at the mercy of the lenders as their disadvantaged position
would make them succumb to unfair contract terms. Thus the necessity for regulation that
saw the enactment in 1952 of the Uganda Money Lenders Act which is a replica of the
English Money Lenders Act of 1900. Incidentally, the regulation was essentially for the
money lenders rather than the borrowers and the same was intended to harmonise their
unequal standing.

The money lenders contract being a financial contract, the money lenders law made the
personality and integrity of the money lenders of paramount importance. Any person
intending to carry on a money lending business, or any person to be saddled with the
responsibility of managing the business for that matter, must be a fit and proper person in
terms of his character and disposition. This and other qualities of a money lender must be
attested to by a magistrate in a certificate which is issued to the money lender as a
precondition for the grant of a licence for the money lending business.19

To obtain a magistrate’s certificate, the proposed money lender must make an application to
the magistrate having jurisdiction in the place in which the money lender’s business is to be

19
See section 3 of the Money Lenders Act, cap.573, laws of Uganda generally.

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The barrage of Private Money Lending in Uganda: The need for Reform of the Law
carried on.20 Every magistrate’s certificate must be in respect of one proposed money lender
and in respect of one business address.21

In other words there can be no issuance of the magistrate’s certificate to a firm of persons, to
individuals and for one place of business. Where a money lender uses a business name or
operates as a firm, he must do so in his own name and the certificate is for him alone and the
address indicated. For every additional place of business there must be a fresh certificate.
There however, appears to be some confusion in the provisions of Section 3(4) (a) of the
Money Lenders law which suggests that the money lender cannot be issued with the
certificate in a name other than his true name. The section provides inter alia, that every
certificate granted to a money lender shall “show his true name and the name under which…
he is authorised by the certificate to carry on business…”

It is submitted that the connotation of the section is simply that whereas a money lender can
operate under a firm or business name or in partnership with other money lenders, the
magistrate’s certificate, and indeed the money lender’s licence (as shall be expounded) must
be in the true name of the money lender. Thus a certificate must among other things contain
the name of the proposed money lender, any other name under which the money lender
intends to operate, which name must not include the word “bank” and the address of the place
of business.

A magistrate may refuse to grant his certificate for the following reasons;22
a) That satisfactory evidence has not been produced of the good character of the
applicant and in the case of a company, of the persons responsible for the
management of the company.
b) That satisfactory evidence has been produced that the applicant or any person
responsible or proposed to be responsible for the management of his or her business
as a money lender, is not fit and proper to hold a certificate.
c) That the applicant or any person responsible or proposed to be responsible for the
management of his or her business as a money lender is by order of a court
disqualified from holding a certificate;

20
See Section 3(3)
21
Section 3(4)
22
Section 3(6)(a), (b), (c) & (d) of the Money Lenders Act, cap.273

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The barrage of Private Money Lending in Uganda: The need for Reform of the Law
d) That the applicant has not complied with the provisions of any rules made under the
Act with respect to application of certificate.

Note that any person aggrieved by the refusal of a magistrate to grant a certificate in respect
of a money lenders application may appeal to the High court. A magistrate can still refuse to
grant a certificate to an applicant irrespective of the fact that he had been a money lender
before.
Upon the issuance of the magistrates’ certificate, the money lender becomes eligible for the
grant of a money lenders licence.23 The licence is the permit or authority with which a person
is entitled to engage in the business of money lending.

The money lender’s licence, as noted earlier, must be taken out by the money lender in his
own true name otherwise it will be void and the licence must show the authorised name and
authorised address of the money lender.24 “Authorised name” and “authorised address”
referred to here mean the name under which and the address at which a proposed money
lender is authorised by a magistrate’s certificate to carry on business as a money lender. 25 The
licence must also be for the money lender alone and in respect of one business address. The
magistrate’s certificate and money lender’s licence are renewable annually. Both of them are
declared by the law to expire on the 31st day of December each year irrespective of when they
are granted in the course of the year.26

In the case of Naks Ltd Vs- Kyobe Senyange [1982] HCB 52 27, it was the decision of Court
that since the plaintiff had no money lending licence, any agreement or contract so made in
default was illegal and could not be enforced by the courts on the basis of the maxim ex turpi
causa. This latin phrase, a contraction of a much longer phrase ex turpi causa non oritur
action simply means that ‘no claim arises from a base cause’. The policy was well
summarised by Lord Mansfield, C.J in the 18th Century when he said:

23
See Section 3(1)
24
See section 2(3)
25
See the Interpretation Section, Section 1 (1) (a)
26
Section 2(2)
27
This case was cited with approval in the case of Jamba Soita Ali Vs. David Salaam, HCT-00-CS-0400-2005,
Commercial court by, Hon. Mr. Justice Yorokamu Bamwine

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The barrage of Private Money Lending in Uganda: The need for Reform of the Law
“No Court will lend its aid to a man who founds his cause of cause of action upon an
immoral or illegal act. If the cause of cause appears to arise ex turpi causa…… the court
says he has no right to be assisted”28.

To check the practice by money lenders of shifting goal posts in the course of play, the law
requires that every money lending contract must be set down in writing, signed by the parties
to the contract or their respective agents before the money is lent and security given
otherwise such contract shall not be enforceable by a money lender against a borrower.29 The
requirement that the memorandum must be signed and security given “before” the money is
lent was the subject of interpretation in the Nigerian case of Oyebode vs. Oloyede 30. It was
held in that case that where the transaction reveals that anything was done for the purpose of
the loan, it would be presumed that it was done before the loan was given and security
provided where it cannot be established with certainty when it was done. Thus, the statement
by the borrower that “it was this house that I used his security for the loan” was held to raise
the presumption that the security was provided before the money was lent notwithstanding
the claim of the borrower to the contrary.

It must be stated that the absence of writing will not, ipso facto, render the contract void.
Thus, where a money lender has otherwise enforced an oral money contract, the borrower
cannot seek to set aside the contract simply on the ground that it was not in writing; No
particular form of the contract is prescribed; a note or memorandum in writing will suffice
provided that the said note or memorandum shall contain all the terms of the contract and in
particular shall show separately and distinctively;
a) The date on which the loan is made.
b) The amount of the principal of the loan; and
c) The rate of interest if not expressed in terms of a rate percent per annum, the amount
of such interest.31

Since English language is the central medium of communication in Uganda, it is further

required that all dates and numbers shall be written in English numerals not withstanding that
they are also written in any other way.
28
See, Success in Law, 4th Edn by Ricahrd H. Bruce at P. 260.
29
See Section 6(1)
30
(1999) 2 NWLR (Pg. 592) 523.
31
Section 6(1) & (2)

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The barrage of Private Money Lending in Uganda: The need for Reform of the Law

For purposes of emphasis, failure to comply with the requirements as to the form and content
of a money lender contract will not render the contract void or illegal but unenforceable. 32 In
the Nigerian Case of Balogun v. Obisanya & Anor33, the transaction was held unenforceable
against the borrower where the money lender failed to sign the mortgage deed by which the
loan was secured and failed to deliver a copy of the mortgage deed to the borrower as
required under Section 6 (1). The onus is on the money lender to show that he has complied
with the provisions of the law as to the contents of the contract since they are in the nature of
a condition precedent to the bringing of an action.

Further obligations are imposed on the money lender by section 9 of the money lenders law.
There are two main obligations here: the first is to issue receipts and the second is to keep a
book of records. Every money lender is expected to give a receipt for every payment made to
him on account of a loan or any interest paid in respect of the loan and such a receipt must be
issued immediately the payment is made. This provision is fundamental because fraud is as
old as mankind, and when the provision is complied with, many a shylock in the name of
money lenders wouldn’t restrain themselves from alleging that the borrowers have made no
particular payments when in fact they have.

The money lender must also keep record of his transactions with the borrower. This record
must be by way of a book which must be securely bound together and paged so that leaves
cannot be removed or inserted without apparent damage to it. The book must contain records
of every loan made to him, which record must include the date on which the loan was made,
the amount of the principle, the rate of the interest payable and all sums received in respect of
the loan or the interest thereon, with the date of payment thereof. The entries in the said book
shall be made forthwith on the making of the loan or the receipt of sums paid in respect
thereof as the case may be.

Note that any money lender who fails to comply with any of the requirements shall not be
entitled to enforce any claim in respect of any transaction in relation to which the default
shall have been made, and commits an offence and is liable on conviction to a fine not
exceeding two hundred shillings or in the case of a continuing offence to a fine not exceeding
32
See, Ezejiofor, Okonkwo & Illegbure, Nigerian Business law (London, Sweet and Maxwell, (1983). P.51.
33
(1956) 1 F.S.C 22

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The barrage of Private Money Lending in Uganda: The need for Reform of the Law
one hundred shillings for each day or part of a day during which the offence continues. 34
Thus, it would appear that the obligations imposed on the money lender by Section 9 are
more stringent than those contained in Section 6 of the law. Not only will failure to comply
with the former result in the conviction of the money lender, he will also forfeit any interest
and indeed the principal sum under any related transaction carried out without due
compliance with the requirements. There has been a judicial application of the provision of
Section 935 in the case of Kasumu v. Baba Egbe.36 In this case, the plaintiff mortgaged
certain leasehold property to Kasumu, a licensed money lender to secure a loan of £2,000.
The money lender had admittedly kept no book recording of the transaction as required by
Section 19 of the Money Lenders Ordinance 1939, which is verbatim ad litem with Section 9
of our law. The Privy Council held with emphasis thus;
“ The ordinance in enacting that no loan which failed to satisfy the statutory requirements
was to be enforced meant that no court of law was to recognise the lender as having a right
at law to get his money back, if the court were to impose terms of repayment as a condition of
making any order for relief it would be expressing a policy of its own in regard to such a
transaction which was in direct conflict with the policy of the ordinance.”

In the similar Nigerian case of Nwankwo vs. Orji37, the court reached a similar decision as
that in Kasumu’s case where the money lender failed to issue a receipt to the borrower and
make an entry in the book as required under Section 19 of the ordinance, the transaction was
held unenforceable.

Further, the money lender places restrictions on the money lending advertisements. Under
Section 13(4) money lenders are prohibited from employing canvassers or agents for the
purpose of soliciting for borrowers for the lender. There does not seem to be any utility to this
section as the only consequence for non compliance is that the money lender cannot cause the
borrower to pay any commission to any canvasser or agent, nor can the canvasser or agent
enter into a valid contract with the borrower for commission.

34
See Section 9(4) of the Money Lenders Act.
35
See Section 9 is equivalent to Section 19 of the Money Lenders Ordinance, 1939, English laws.
36
(1956) 3 WLR 575; (1956) AC 539.
37
(1964) 8 EVLR 1.

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The barrage of Private Money Lending in Uganda: The need for Reform of the Law
Another important obligation of the money lender is that of supplying information to the
borrower.38 The money lender is obliged to disclose every information relating to the
transaction to the borrower. This duty of disclosure is however, subject to a demand by the
borrower and upon tendering of a reasonable sum for expenses. Where the borrower has
made a demand and paid a reasonable sum to discharge the expenses of the money lender and
the money lender fails without reasonable excuse to comply with the demand within one
month after the demand has been made, he or she shall not, as long as the default continues
be entitled to sue or recover any sum due under the contract on account either of principal or
interest and interest shall not be chargeable in respect of the period of the default, and if the
default is made or continues after the proceedings have ceased to lie in respect of the loan, the
money lender commits an offence and is liable on conviction by a magistrate to a fine not
exceeding one hundred shillings for everyday on which the default continues.

It is observed that the regulation of money lending by law came about in the first instance as
a result of the way the money lenders conducted themselves. Thus the money lender law
intends to ensure credibility and some level of transparency in money lending transactions
such that the money lender does not arbitrarily conduct business behind closed curtains and
thus take undue advantage of the borrower (consumer) who without the help of the law, will
be at the mercy of shylock lenders in their hour of distress which led them to go borrowing in
the first place. Hence, the emphasis on record keeping under the law and the fixing of the
maximum rates of interest chargeable which is discussed in the next subheading.

5.1 Regulation of Interest Chargeable.

As noted earlier, Usury39 which is the oldest name for money lending was largely detested as
a result of the exploitative tendencies of the money lenders and excessively high interest rates
charged. This led to legislation by the English Parliament admitting “usury” under the
modern tag of “money lending” but in that bid fixed and regulated the taking of interest not
exceeding 10 percent.

The background no doubt led to the adoption of the provision regulating interest chargeable
by lenders generally under Section 12 of the Money Lenders Act Cap.273, laws of Uganda

38
See Section 8
39
Defined in Oxford Advanced Learner’s Dictionary (5th Ed. 1998) as “the practise of lending money at an
excessively high rate of interest.”

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The barrage of Private Money Lending in Uganda: The need for Reform of the Law
which is a direct replica of the Money Lenders Act of England. For purposes of clarity and
emphasis, the provisions of Section 12 are hereunder reproduced in extensor:
Section 12 (1); Where, in any proceedings in respect of any money lent by a money lender
after the commencement of this Act or in respect of any agreement or security made or taken
after the commencement of this Act in respect of money lent either before or after the
commencement of this Act, it is found that the interest charged exceeds the rate of 24 percent
per year or the corresponding rate in respect of any other period, the court shall presume for
purposes of Section 11 (of the same Act, in relation to reopening transactions of money
lenders) that the interest charged is excessive and that the transaction is harsh and
unconscionable, but this provision shall be without prejudice to the powers of the court
under that section where the court is satisfied that the interest charged, although not
exceeding 24 percent per year is excessive.

It goes without saying that some money lenders are in the habit of imposing multiple charges
outside the prescribed interest rates. This practise has been checked by the definition of
“interest” in the law which is as follows;
Interest includes any amount, by whatsoever name called, in excess of the principal, paid or
payable to a money lender in consideration of or otherwise in respect of a loan.40”

It is the author’s observation that by Section 12, using the words “harsh and unconscionable”
it implies that the money lenders transaction which falls under that category is illegal and
unenforceable. It is unfortunate though that the section stops at that without mentioning
whether a money lender who charges unauthorised interest is liable for any offence which
leaves the section without a biting force.

It is also the case that Section 12 refers to section 11 which gives powers to court to reopen
transactions of money lenders but still the same section does not create any offence and
punishment in case of reopening the transaction should the court find that the interest charged
is excessive and illegal. This also weakens strict compliance.

For purposes of emphasis I wish to reproduce Section 11 verbatim;

“Where proceedings are taken in any court by a money lender for the recovery of any money
lent...., and there is evidence which satisfies the court that the interest charged for expenses,
40
See, the Interpretation Section 1 (f) of the Money Lenders Act.

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The barrage of Private Money Lending in Uganda: The need for Reform of the Law
inquiries, fines, bonus, premium, renewals or any other charges, are excessive and that in
either case, the transaction is harsh and unconscionable, or is otherwise such that a court of
equity would give relief, the court may reopen the transaction, and take an account between
the money lender and the person sued, and may, notwithstanding any statement or settlement
of account or any agreement purporting to close previous dealings and create a new
obligation, reopen any account already taken between them ,and relieve the person sued
from payment of any 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; and if any such excess has been paid, or
allowed in account, by the debtor, may order the creditor to repay it and may set aside,
either wholly or in part, or revise or rather alter any security given or agreement made in
respect of money lent by the money lender, and if the money lender has parted with the
security may order him or her to indemnify the borrower or other persons sued.”

Black’s Law Dictionary41, defines unconscionability to mean extreme unfairness and

unconscionable as having no conscience, unscrupulous; affronting the sense of justice,
decency or reasonableness. In the case of Dembe Trading Enterprises Ltd Vs. Welcome
Impex Ltd42, Mukasa J. adopted the definition of unconscionable as laid down in the
Money Lenders Act Cap. 273. Section 26 of the Civil Procedure Act Cap. 71 (CPA)
provides that where an agreement for the payment of interest is sought to be enforced by legal
process, the court may give judgement for the payment of interest as it may think just. In the
case of Juma Vs. Habibu43, the High Court of Tanzania basing on the provisions of Tanzania
CPA which are similar to section 26 of our CPA, set aside the interest rate apparently agreed
upon by the parties for reasons that it was inherently excessive and unconscionable.
Similarly, in the case of Attorney General Vs. Sam Semanda44, Tsekooko, JSC noted that
under section 26 of the Civil Procedure Act, unless interest is provided by agreement and is
not harsh and unconscionable, courts exercise discretion in awarding interest. Note that it is
settled law that a bargain cannot be unfair and unconscionable unless one of the parties to it
has imposed the objectionable terms in a morally reprehensive manner, that is to say, in a
way which affects his conscience45.

41
7th Edition at page 1526
42
HCCS No. 0246 of 2006
43
[1975] E.A 103
44
Supreme Court Civil Appeal No. 8 of 2006.
45
See the case of Multiservice Ltd and others Vs. Marden, [1978]2 ALL ER 489, 502.

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The barrage of Private Money Lending in Uganda: The need for Reform of the Law

According to Halsbury’s Laws of England Edition volume 27 page 30 Para 80 where a

money lender contravenes the provisions of the Money Lenders Act, the transaction is
unlawful and any contract which forms part of it is void and confers no rights. Section 26 of
the CPA, whose content is already discussed above, gives powers to the Court to intervene in
an agreement where interest is harsh and unconscionable. The purpose of this provision is to
guard against unjust enrichment. In the case of C.P. Lalobo -vs Buganda Butcheries46, the
interest rate of 48% p.a was held to be harsh and unconscionable and was reduced to 24% p.a,
and the case of Bagoka -vs- Kibwaijana47, interest was reduced from 48% to 10%.

It suffices to note also that under S. 21 (1) (c) of the Money Lenders Act, the Act does not
apply to any money lending transaction where the security for the 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 bonafide transaction of money
lending upon such mortgage or charge. The exemption provided for in this section applies
whether the transactions referred to above are effected by a money lender or not. Clearly,
therefore, occasionally where there is any objection as to the application of the Money
Lenders Act, Courts have to determine the nature of the transaction before proceeding to
determine the merits of the particular suit before it. In other words, until Court listens to the
evidence, both for the plaintiff and the defendant, the issues raised in the pleadings cannot be
decided fairly and squarely, one way or the other48.

6.0 Limitation of Action.

A money lender cannot bring an action to recover money lent or any interest in respect of a
loan, or to enforce any agreement or security thereof unless the action is instituted before the
expiration of twelve months counting from the time when the cause of action fell due. 49 For
example a cause of action is due when payment is due and is not made. However, there are
four major exceptions to this limitation:50

46
(1947) 14 EACA 12
47
[1976] HCB 338
48
This position was bolstered in the case of Investment Masters Ltd Vs. Abrose Kagangure, HCT-00-CC-C.S-
2005, Commercial Court Division, the decision of Mr. Justice Yorokamu Bamwine.
49
See Section 19 (1)
50
Section 19 (2) (a), (b), (c), & (d)

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The barrage of Private Money Lending in Uganda: The need for Reform of the Law
a) Where the borrower makes an acknowledgement or undertaking to pay in writing at
any time before or after the time when the loan was due for repayment, time will start
counting from the date of such acknowledgement or undertaking.
b) The time shall also not begin to run in respect of any payments from time to time
becoming due to a money lender under a contract for the loan of money until a cause
of action accrues in respect of the last payment becoming due under the contract.

c) If at the date on which the cause of action accrues or on which any such
acknowledgement and undertaking as a foresaid is given by the debtor, the person
entitled to take the proceedings is not compos mentis the time limited by the
foregoing provisions of this section shall not begin to run until that person ceases to
be non compos mentis or dies, whichever first occurs; and

d) If at the date on which the cause of action accrues or on which any such
acknowledgement and undertaking as aforesaid is given by the debtor, the debtor is
out of Uganda, the time limited by the foregoing provisions of this section for the
commencement of proceeding shall not begin to run until he or she returns to Uganda.

In the case of Akinnola vs. Akinyosoyo51, it was the decision of court that a written
acknowledgement of indebtedness or undertaking must state the amount, otherwise it is
ineffective. It will however, suffice if the acknowledgement or undertaking which did not
state the amount was a reply to a communication which states the amount.

The limitation provision has affected quite a number of money lenders resulting to dismissal
of many of their cases. In the case of Uganda Ecumenical Church Loan Fund Ltd Vs.
Nankabirwa Harriet, a decision by Hon. Mr. Justice Lameck N. Mukasa, the case was
rejected and dismissed with costs under Order 7 rule 11 (d) of the Civil Procedure Act for
being time- barred by the provisions of section 19(1) of the Money lenders Act.

7.0 Conclusion
Money lending today affects all sections of the community and not an isolated segment as
was the case in earlier times. Consequently whilst conceding that the existing laws premise
pertinent provisions that both regulate the lending of money by spelling out the rights and
51
(1973) NCLR 185

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The barrage of Private Money Lending in Uganda: The need for Reform of the Law
obligations of lenders and borrowers, and also those that ensure that the unwary or perhaps
even fool hardy borrowers are safeguarded from the unscrupulous or rapacious money
lenders, they have been continuously ignored and/or breached by money lenders to the
detriment of the unsuspicious borrowers.

Besides it would be useful for the providers of financial services to notice that many people
continue to borrow from money lenders, despite their extremely high interest rates, utter
violation of the provisions of the money lenders Act and business ethics. Money lenders do
one thing well: they provide rapid short term small loans with simple and clear access
requirements.

Note that while the present Money Lenders Act somehow protects the borrowers against the
exploitative tendencies of the lenders, the restrictive and/or stringent provisions stretching
from the requirements to have a certificate from the magistrate with jurisdiction, licence for
money lending, restrictions on interest rates, advertisements, to mention but a few, are often
bypassed due to lack of a supervising and/or regulatory body.

Currently Bank of Uganda’s regulation and prudential supervision covers only commercial
banks, micro deposit institutions, credit institutions, Forex bureaus, and money remittance
companies, but money lending is not captured in the supervisory and regulatory framework,
which is indeed dangerous. Therefore it is recommended by the researcher as hereunder;

8.0 Recommendations.
8.1 Urgent need for a regulatory and supervisory body of money lenders business.
Money lenders do not have a clear regulatory and/or supervisory body under the Money
Lenders Act of 1952, as it is the case of other institutions providing financial services. For
example the requirement under the Money Lenders Act is for a lender to have a licence but
there is no strict control. Besides there are quacks passing out as money lenders and have
successfully continued to charge borrowers an interest rate as high as 50% due to lack of a
clear clamp-down body. As a result borrowers have lost their properties to loan sharks
because there are no strict controls to govern the lending business. Therefore this article
argues a very strong case for reforming the Money Lenders Act to ensure that private lending
is regulated to minimise the rate at which loan sharks fleece borrowers.

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The barrage of Private Money Lending in Uganda: The need for Reform of the Law

8.2 Revision of the Sentences on offences in the Money Lenders Act.

The Money Lenders Act was enacted in 1952, way before even the Uganda’s Independence
of 1962. The sentences provided therein are overdue for a review. These sentences need to be
profoundly revised to reflect the current social, political and economic environment. The very
reason why quack money lenders have found it very easy to survive with their malpractice
because the penalties negligible. This article suggests that the penalty for breach of the
provisions relating to charging unauthorised interest should be forfeiture of the whole
interest.

8.3 Adopting a liberal approach in Interpretation of the Money Lenders’ law.

It is also recommended that our courts should be more liberal in the interpretation of the law;
under no circumstance should a money lender forfeit his principal even though he may forfeit
his interest for charging beyond the ceiling. This recommendation is premised on the fact that
in order to easily wipe out the continued malpractice by money lenders, the Act should
recognise that money lending is a legitimate and necessary business and that it is wrong to
treat it as some sort of sordid trade but only create clear laws regulating it. Technical
breaches of the Act should not be treated as automatically invalidating the whole or part of
the loan agreement.

8.4 General structure of the Money lenders Act

The money lenders Act should be generally crafted in the way that protects borrowers against
misleading advertisements and being given a false impression of the agreements they enter
into. It should protect them against harsh conduct on the part of the money lenders if they fall
into default. It should also give courts a general jurisdiction to re-open agreements where the
interest is excessive or there has been any unfair advantage taken by the money lender.

8.5 The definition of Money Lending

To lend money is not the same as to carry on the business of money lending. In order to prove
that a man is a money lender, it is necessary to show some degree of system and continuity in
his money lending transactions. In consequence this article considers that the definition of
money lending should be couched in terms that encompasses not only to the “business of
lending money but also to the regular lending of such commodity.

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The barrage of Private Money Lending in Uganda: The need for Reform of the Law

There is now a high demand when it comes to money lending businesses and they will be
growing in the next years due to the fact that a lot of people are affected by economic crisis.
At the same time money lenders usually provide people with the opportunity to gain credit in
different ways whether by means of credit cards, unsecured and swift personal loans which
loans are easily applied for, approved and disbursed in one or two visits to the money
lender’s office. Therefore, the rapid growth of money lending business needs a strong,
flexible and effective legislation to enable the business to cope with adequately with the
present day attitude towards the lending of money and with business procedures.

8.6 A need for an institutional Framework

Merely amending the Money Lenders Act, may not be enough, the situation warrants that
establishing an institutional frame work to implement the provisions of the Act is necessary.
The institutional framework should be entrusted with powers to regulate and supervise the
operations of Money lending business to ensure compliance with the Act.

References

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The barrage of Private Money Lending in Uganda: The need for Reform of the Law
Acts & Laws

Civil Procedure Act, Cap. 71

Civil Procedure Rules, SI 71-1.

Halsbury’s Laws of England Edition volume 27 page 30 Para 80.

Money Lenders Act, cap.573, laws of Uganda.

The Money Lenders Act 1900, Laws of England.

The Money Lenders Act 1927, Laws of England.

The Money Lenders Ordinance, 1939, English laws.

Usury Laws Repeal Act, 1854.

Books
Holy Bible- New Living Translation, Second Edition, Tyndale House Publishers,
Inc.Wheaton, illinois.

Richard H. Bruce Success in Law, 4th Edn at P. 260.

William Ellis (Everyman d); Politics, Book 1, Chap. X. Translated by P.19.

Scholarly Articles.

Esege E. Eja and Ecuah. E. Bassey: Money lending law and regulation of Consumer Credit in
Nigeria, Lecturers at Faculty of Law, University of Calabar, Calabar, Nigeria.

R. M. Gorde, “The Legal Regulation of lending in: A.L Diamond (ed.) Instalment Credit
(London: Stevens & Sons, 1970) P.45.

St. Paul, Minn: West Group, 1999) P.1543.

News Paper Articles

Joel Ogwanga: Money Lending: Why SACCO-led War on Poverty has yielded limited
success, New vision Publications, Wednesday, 5th January, 2011.

Petrude Mudoola: Legislators asked for law to regulate money lenders, New Vision
Publications dated Friday, December 14th 2012.

Dictionaries

Black’s Law dictionary, 7th Edition at page 1526.

Bryan Garner. Ed. Black’s Law Dictionary, 7th Edition.

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The barrage of Private Money Lending in Uganda: The need for Reform of the Law

Jonathan Gowther. Ed., ed. Oxford Advanced Learners Dictionary (Oxford: OUP.1998)
P.1316.
Oxford Advanced Learner’s Dictionary (5th Ed. 1998).

Cases/Precedents cited

Akinnola vs. Akinyosoyo (1973) NCLR 185

Attorney General Vs. Sam Semanda, Supreme Court Civil Appeal No. 8 of 2006. Judgment
of Tsekooko, JSC.
Bagoka -vs- Kibwaijana [1976] HCB 338
Balogun v. Obisanya & Anor (1956) 1 F.S.C 22
C.P. Lalobo -vs Buganda Butcheries (1947) 14 EACA 12
Dembe Trading Enterprises Ltd Vs. Welcome Impex Ltd HCCS No. 0246 of 2006, Decision
of Mukasa J
Ecumenical Church Loan Fund (v) Ecloff Vs. John Buliza & Ors, H.C.T-00-CC-CS-064 of
2004 before, Hon, Mr. Justice Yorokamu Bamwine.
Ezejiofor, Okonkwo & Illegbure, Nigerian Business law (London, Sweet and Maxwell,
(1983). P.51. (1956) 1 F.S.C 22.
Investment Masters Ltd Vs. Abrose Kagangure, HCT-00-CC-C.S-2005, Commercial Court
Division, the decision of Mr. Justice Yorokamu Bamwine.
Investment Masters vs. Abrose Kangure HCCS No. 312 of 2005.
Jamba Soita Ali Vs. David Salaam, HCT-00-CS-0400-2005, Commercial court by, Hon. Mr.
Justice Yorokamu Bamwine.
Juma Vs. Habibu [1975] E.A 103
Kasumu v. Baba Egbe (1956) 3 WLR 575; (1956) AC 539.
Litchfield vs. Dreyfus [1906] 1 KB 584 at 588-589
Multiservice Ltd and others Vs. Marden, [1978]2 ALL ER 489, 502.
Naks Ltd Vs- Kyobe Senyange [1982] HCB 52.
Noel Nuwe Kyapaka Vs. Philip Ronald Baguma & Peter Mukiiza, HCT-00-CC-CS-1-2007,
Commercial Court Division, Hon. Justice Geofrey Kiryabwire.
Nwankwo vs. Orji (1964) 8 EVLR 1.
Ojikutu vs. Agbonmagbe Bank Ltd (1966) NCHR 246.
Oyebode vs. Oloyede (1999) 2 NWLR (Pg. 592) 523.

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The barrage of Private Money Lending in Uganda: The need for Reform of the Law
Uganda Ecumenical Church Loan Fund Ltd Vs. Nankabirwa Harriet, HCT-00-CC-CS-0307-
2002, Hon. Mr. Justice Lameck N. Mukasa
Veritas Insurance Co. Ltd vs. Citi Trust Investment Ltd (1993)3 NWLR (Pt. 281) 349.

Sites visited
hpp://www.newvision.co.ug/D/9/32/756364.
http: ww.myjewishliving.com/history/ancient.
www. 1911 encyclopedia.org:accessed 02/01/2011 C 8/01/ 2012
www.en.wikipedia.org:accessed 18/04/2011.

By Kyeyune Albert Collins