money lenders article-kac revised-14-2-2013

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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 tightlyregulated. Until a year ago, I knew nothing about paydayloans. Of course, I had heard about loan sharks and I knew ofthe murky underworld where desperate people seekingimmediate cash could get it quickly from back street dealers. Ialso knew that if you did not repay your loan, persuasive

1 LL.M (MUK), LLB (Hons) (UCU), Dip. LP. (LDC-Kampala). Advocate andSolicitor of the Courts of Judicature and subordinate courts in Uganda.Senior Partner, Mukiibi & Kyeyune Advocates & Part-time Advocate, PublicInterest Law Clinic (PILAC) - Makerere University- Faculty of Law.

By Kyeyune Albert Collins

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people with black gloves and baseball bats would come roundand make you an offer you could not refuse2.

1.0 Abstract:

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.

2 By Parry Mitchell, a shadow business minister in the House of Lords, 15th November2012Extracted fromhttp://www.progressonline.org.uk/category/sections/section-progress-magazine. Accessed on the 2nd March 2013.


http://www.progressonline.org.uk/category/sections/section-progress-magazine

http://www.progressonline.org.uk/category/sections/section-progress-magazine

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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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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. 3 See: the history of the main commercial occupation of Jews in ChristianEurope, money lending. It is reprinted with permission from Medieval Jewishcivilization: An Encyclopaedia (Roulldege), by Norman Ruth: Extracted fromhttp: ww.myjewishliving.com/history/ancient.4 In comparison Islamic religion prevents believers from dealings thatinvolve usury or interest (Riba). In the same premise the best knownfeature of Islamic banking is the prohibition on interest. The Qur'anforbids the charging of Riba and there is now a general consensus amongMuslim economists that Riba is not restricted to usury but encompassesinterest as well. The Qur'an is clear about the prohibition of Riba, whichis sometimes defined as excessive interest. "O You who believe! Fear AllahAlmighty and give up that remains of your demand for usury, if you areindeed believers."? Muslim scholars have accepted the word Riba to mean anyfixed or guaranteed interest payment on cash advances or on deposits.Several Qur'anic passages expressly admonish the faithful to shun interest.Sourced fromhttp://www.parvez-video.com/islam/reformation/principle_islamic_banking/


http://www.parvez-video.com/islam/reformation/principle_islamic_banking/index.asp


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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 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

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.45.6 See Exodus 22:25-26, see also Leviticus 25:35-37.7 For similar definitions. See Bryan Garner. Ed. Black’s Law Dictionary, 7th

Edition (St. Paul, Minn: West Group, 1999) P.1543 and Jonathan Gowther.




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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 wasEd., ed. Oxford Advanced Learners Dictionary (Oxford: OUP.1998)P.13168 Politics, Book 1, Chap. X. Translated by William Ellis (Everyman d) P.199 See, “Money Lending” at www. 1911 encyclopedia.org:accessed 02/01/2011 C8/01/ 201210Ibid


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enacted and interest up to 10% could be charged on a loan of

money.

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”

11 Ibid12 R. M. Goode. OP. Cit., P.51


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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.

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.

13 See, “Consumer Credit Act” and www.en.wikipedia.org:accessed on the18/04/2011.


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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.


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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.”

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

14 Cited in the Ugandan case of Ecumenical Church Loan Fund (v) Ecloff Vs.John Buliza & Ors, H.C.T-00-CC-CS-064 of 2004 before, Hon, Mr. JusticeYorokamu Bamwine.15 See, Section 1(h) of the Money Lenders Act, Cap. 273, Laws of Uganda.


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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 desperate borrower at an exorbitant


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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

16 Ibid.17 (1966) NCHR 246


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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 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.18 Commercial Court Division, Civil Suit No.1 of 2007


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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

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


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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 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

20 See Section 3(3)21 Section 3(4)


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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;

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 lenders22 Section 3(6)(a), (b), (c) & (d) of the Money Lenders Act, cap.273


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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

23 See Section 3(1)24 See section 2(3)25 See the Interpretation Section, Section 1 (1) (a)26 Section 2(2)


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In the case of Naks Ltd Vs- Kyobe Senyange [1982] HCB 5227, 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:

“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. Oloyede30.

It was held in that case that where the transaction reveals

that anything was done for the purpose of the loan, it would

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. JusticeYorokamu Bamwine28 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.


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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.

31 Section 6(1) & (2)


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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.

32 See, Ezejiofor, Okonkwo & Illegbure, Nigerian Business law (London, Sweetand Maxwell, (1983). P.51.33 (1956) 1 F.S.C 22


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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 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 the34 See Section 9(4) of the Money Lenders Act.


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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

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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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.

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.

38 See Section 8


P a g e | 24


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

which is a direct replica of the Money Lenders Act of England.

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


P a g e | 25


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 who40 See, the Interpretation Section 1 (f) of the Money Lenders Act.


P a g e | 26


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, 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


P a g e | 27


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

41 7th Edition at page 152642 HCCS No. 0246 of 200643 [1975] E.A 10344 Supreme Court Civil Appeal No. 8 of 2006.


P a g e | 28


morally reprehensive manner, that is to say, in a way which

affects his conscience45.

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.

45 See the case of Multiservice Ltd and others Vs. Marden, [1978]2 ALL ER489, 502.46 (1947) 14 EACA 1247 [1976] HCB 338


P a g e | 29


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

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 lender48 This position was bolstered in the case of Investment Masters Ltd Vs.Abrose Kagangure, HCT-00-CC-C.S-2005, Commercial Court Division, thedecision of Mr. Justice Yorokamu Bamwine.49 See Section 19 (1)50 Section 19 (2) (a), (b), (c), & (d)


P a g e | 30


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.

51 (1973) NCLR 185


P a g e | 31


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 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.


P a g e | 32


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


P a g e | 33


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.

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


P a g e | 34


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.


P a g e | 35


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.


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References

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.

BooksHoly Bible- New Living Translation, Second Edition, TyndaleHouse 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.


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Scholarly Articles.

Esege E. Eja and Ecuah. E. Bassey: Money lending law andregulation of Consumer Credit in Nigeria, Lecturers at Facultyof 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 hasyielded limited success, New vision Publications, Wednesday,5th January, 2011.

Petrude Mudoola: Legislators asked for law to regulate moneylenders, 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.

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.


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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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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.


money lenders article-kac revised-14-2-2013

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