Money Lenders or Sharks

Khisa Betty
Senior Principal State Attorney

On 22.8.06 I listened to the programme "In the Hot seat" on 93.3 Monitor FM. One Ben Kavuya was in the hot seat. One of the panelists on the show was Angelo Izama. The topic for discussion was the saga being played in the media concerning Ben Kavuya and Mike Ezra a one time sought after philanthropist in town.

One of the issues raised by the panelists was whether the contract entered into between Kavuya and Ezra was a loan transaction or a sale.This set me thinking about the various loan transactions which go bad in Kampala city.

While Ezra had previously argued that the transaction he entered into with Kavuya was a loan and not a sale, Kavuya was now arguing that they were two separate transactions, one being a loan and the second being a sale. He argued that he had loaned Ezra $240.000 and had also bought from Ezra's mother a house. He argued further that he had agreements drawn by his Lawyer laying down the terms of the two transactions. This matter has now been taken to the commercial court for arbitration, for that reason, I refrain from expressing an opinion lest I offend the subjudice rule.

Nonetheless, the fact remains that money lending business is booming in town for both licenced and unlicenced money lenders.

According to the Money Lenders Act (Cap 273 Laws of Uganda) for one to operate a money lending business, one is obliged to take out a money lender's licence in his/her true names for a period of one year. The licence automatically expires on 31st December of every year. Before one gets a money lender's licence, one has to first get a Certificate from a Magistrate having jurisdiction in the place in which the money lender's business is to be carried out. This certificate also expires every 31st day of December.

It therefore means that each year, both the certificate and the licence have to be renewed. The law emphasizes need for the Magistrate to assess the character of applicants who seek money lender's certificates. The Magistrates thus have a descretion either to issue or refuse issuance of the certificates. This, in my view must have been the intention of the legislature trying to protect the public from would be loan sharks. The question therefore is, how have the Magistrates, exercised their supervisory role over the persons to whom they issue the money lender's certificates? I leave the answer to the question to members of the public who have been victims of unscruplous money lenders.

The irony is further compounded by money lenders who act as if they are above the law. While the astute ones dress their operations in legalities by seeking and obtaining both licences and certificates, what they do after that leaves much to be desired.

Section 12 of the Money Lender's Act sets interest rates chargeable on loans not to exceed 24 per cent per year. Section 7 prohibits charging of compound interest rate by virtue of default in repayment of sums due by the borrower.

The fact is that money lenders charge their interest by the week and others by the day. They compound the interest rate in total disregard of the provisions of the Money Lender's Act. They take securities of both movable and immovable property of the borrowers and cause them to sign transfer deeds. At the slightest default, they proceed to dispose of the borrower's assets in total disregard of the law.

Before the law on bouncing cheque was amended to give Magistrate's courts jurisdiction to entertain bail on bad cheques, money lender's had a field day. It was routine for a borrower to sign a postdated cheque in favour of a money lender for a sum dictated by the money lender. When a borrower defaulted on the loan repayment, the money lender would bank the cheque which would automatically bounce. A case would then be reported to police and officers would quickly rush to apprehend the 'suspect'.

Since the borrower/suspect knew he was headed for prison as he/she had no right to bail in the magistrates' courts he/she would quickly contact friends and relatives to contribute to the loan amount to pay off the money lender. In this way the money lenders would use the coarcive arm of Government to settle clearly contractual transaction. That is how ruthless money lenders can be. My advise, the best way to deal with money lenders is not to get involved with them in the first place.

As for Kavuya and Ezra, let us wait to hear what the commercial court will decide.