Digital money lenders are the latest innovation to small loans extended through online platforms or digitally. Their emergence has not been flawless and this is mainly due to a lack of regulations.
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Major concerns gathered from complaints include
- Exorbitant interest rates charged on a weekly basis.
- Lenders who mainly target mobile phone users tend to invade the privacy of the borrowers by demanding access to their phone book contacts.
- Misuse of borrower data
- Threats in case of defaulting
- Unlicenced lending applications or lending through applications which don't use a lender's licenced name
The move commenced at the consultative meeting organised to update digital lenders about the proposed regulations. Speaking at the meeting, Vannessa Nakawooya, the UMRA manager for microfinance institutions, said only digital lenders approved by the Authority will be eligible to offer the services.
As is the practice with telecom, banking and insurance, one of the requirements will be that a digital money lender will have to disclose that they are regulated by the Uganda Micro Finance Regulatory Authority.
Digital lending operators were expected to have input in the proposed regulations that are still in draft.
“The guidelines demand that an application must indicate that it is operated by a company regulated by UMRA,” she said.
UMRA is mandated with the regulation of Tier 4 microfinance institutions, and money lenders as per the 2016 Money Lender’s Act. Part of the moves will ensure customer protection and source of funds among others.
Personal data management issues
The manager for compliance at the personal data protection office affiliated to NITA Uganda, Baker Birikujja said digital money lenders are required to register with his office, but to date, many of them have not fully complied with that regulation.
Birikujja said his office has received several complaints against digital lenders accused of misusing borrowers’ data, while some have gone to the extent of threatening their customers in case of default.
Lenders grievances
Nelson Kituuka, the managing director at a digital money lending company, said that the players in this field, have a lot of challenges operating the business under the prevailing environment.
According to Kituuka, the high-interest rates are a result of the high operational fees they pay to internet service providers.
Digital money lenders also raised concerns about the rate of default by borrowers. He suggested that the guidelines should also ensure that borrowers are compelled to repay the loans.
“We have a problem with nonpayment from the people whom we lend to, but the guidelines are single-sided and only focus on our side. Why can’t there be a mechanism to force the borrowers to pay our money? We can organize for an automatic collection from their mobile money accounts," he said.
The Global Findex 2021, indicates that 66 per cent of Ugandans, have formal accounts which are mainly driven by the penetration of mobile money. The report found that 75 per cent of Ugandans borrowed money in 2021, 57 per cent borrowed from friends and family, 19 per cent from formal financial institutions, and 6 per cent obtained them using mobile accounts.
Digital money lending is spreading fast across the country as part of the efforts to facilitate e-commerce. The products have also been identified as the driver of financial inclusion by extending micro-loans to communities or individuals not reached by the formal banking sector.