MONEY LENDING, MORTGAGE OR SALE? THE DO'S AND DON'TS IN MONEY LENDING

 

MONEY LENDING, MORTGAGE OR SALE?  THE DO'S AND DON'TS IN MONEY LENDING

Abstract

M

oney lending business today continues to be highly infested with lawless participants and masquerading business men purporting to be money lenders whereas not. accordingly, many people and lawyers inclusive have found it quite puzzling to draw a line between which law should most appropriately apply to the particular set of facts imminent to them; whether the mortgages Act, 2009 or if the transaction is governed by Tier 4 Microfinance Institutions and Money Lenders Act, 2016. The complexity comes with the fact of consistency of the on-going trickery between people purporting to be money lenders without a license. Confusion remains prevalent today on who is who in a situation bearing facts of purported money lending, with signed transfer forms deposited. Below here is an attempt to address this issue. It also provide quick notes on what is and what should not be done by a money lender today within the legal parameters.

Ahimbisibwe Innocent Benjamin

(Award winning Entertainment Lawyer)

Introduction

Amid it all, the bold line between a money lender or a mortgagee is drawn by first of all, the restriction of money lending businesses to companies alone and not an individual. section 78(1) rules out natural persons from money lending business technically by  providing that a person intending to engage in money lending business shall be a company and not just a company but a licensed company as per section 84(1)(a).

In other instances, the law seems so straightened to protecting the interests of a borrower involved in an ingenuous money lending transaction, one which purports to be a sale whereas not. this reflects the common trickery today by businessmen accepting deposit of title and conditioning clients with signing transfer forms prior to the lending of money.

Section 8 of the mortgage Act, 2009 forbids such transactions and considers them as equitable mortgages, disregarding the fact of the signed transfer forms. the intention of the law maker seems to be that you are either a licensed money lender or a mortgagee and in all situations, equity shall not ignore an existing obligation by any party to fulfil their part and in accordance  with justice and the law.  for the mere fact that you undertake to lend money to a borrower and they sign transfer forms as precondition, this shall not be a sale, but  a mortgage within the meaning of section 8 of the mortgage Ac, 2009.

Accordingly, I have labored to break down the do’s and don’t for any money lender in Uganda or the ease of business in light of the legal precincts.

The Tier 4 Microfinance Institutions and Money Lenders Act 2016 was rightly enacted to provide in part for the management and Control of Money Lending Businesses. The Act repealed the Money Lenders Act Cap 273, which required moneylenders to apply for a Money Lending License from the Chief Magistrate’s court.

The Act created the Uganda Microfinance Regulatory Authority (UMRA) under section 6 as a body corporate with perpetual succession and a common seal with functions among others to regulate, License and supervise the money lending business in Uganda.

 

The Do’s for Moneylending;

1.      An individual or Company incorporated in Uganda and carrying out money lending business can apply for a license.

2.      The entity seeking a money lending license from the Authority must be a legal entity with an established office.

3.      A licensee shall display the license at all the premises where money lending is transacted.

4.      A license shall expire on the 31st of December in every year and may be renewed annually upon application to the authority.

5.      Furnish the borrower with a copy of the loan agreement including all fees.

6.      Display interest charges at all times at the premises where money lending business is conducted.

7.      Keep and maintain records including proper books of accounts, a cash book, ledger, register of securities register of debtors in a form that the Authority may require.

 

The  Don’ts for Moneylending;

1.      A company shall not operate a money lending business without a license.

2.      A money lender shall not take National ID, passport, warrant card, or other documents establishing the identity or nationality of the holder, bank savings, ATM cards and security codes for the ATM cards as collateral for money borrowed.

3.      Charging exorbitant and compound interest rates on loans.

4.      Borrowers should not sign sale’s agreements for accessing credit facilities instead of loans agreements.

5.      Borrowers should not sign transfer documents in favour of the lender as part of the security for accessing credit.

6.      A money lender is not authorized to carry on business under more than one name.

7.      A money lender shall not take client deposits.

8.      A license issued is not transferable or assignable.