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Uganda judge okays interest on loans from friends, family

Wednesday October 18 2023
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Two people exchanging Ugandan-50,000 notes. PHOTO | ISAAC KASAMANI | DAILY MONITOR

By MONITOR

A court official in Northern Uganda has delivered a landmark judgement, ruling that private individuals who are not lawfully registered as money lenders, can still charge interest on loans they extend to friends or relatives.

Ten days ago, Gulu High Court Judge George Okello handed down the precedent-setting decision, which now provides legal cover for what has, until now, been a largely informal transaction between acquaintances when in need. 

The ruling upheld an earlier consent judgement in which one of the parties to a suit must pay Ush347 million ($92,626) as reimbursement for a loan taken, on top of costs to be set out in due course.

Read: Toll of justice delayed in Uganda weighs in at $2bn

Judge Okello declared that the courts must consider the reality of daily life where people step in to help friends and family during personal emergencies.

“Courts should be alive to the reality of the Ugandan community where acquaintances or friends give money to their own, to satisfy urgent needs. 

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“It would defeat common sense and the doctrine of freedom of contract if it were to be suggested that friendly loan advances should be interest-free, and that no security deposit is required. Such a postulation, with respect, would tantamount to an erroneous understanding of the current regime on lending money,” he ruled.

The decision arose from a matter in which a Stephen Khesmodel Omony dragged his long-time friend Denis Michael Olara to court for failing to pay money he borrowed from him. Mr Olara had tried to hide behind the law regulating the formalised money-lending business to justify his default.

So in making his determination, the judge dismissed a counterclaim by the defaulting party who tried to wiggle out of paying his debt on grounds that Omony was not a licensed money lender.

“There is no law in Uganda that bars individuals from lending to their acquaintances, friends, or persons belonging to a group, among others and charging interest on a loan, as may be mutually agreed. I, therefore, see nothing wrong with an individual giving credit on friendly terms to persons they choose to give,” the judge’s decision dated October 5 reads.

Read: Chinese Entebbe loan deal is binding: MPs

The judge further observed that existing laws on money lending business do not remove the freedom of persons to obtain quick and easy loans from acquaintances at a fee. 

“In my view, to think otherwise, would create an oligopoly situation in Uganda’s economy for licensed money lenders, with the adverse consequences of locking out many people from quick access to capital for production,” the judge observed, adding, “In my considered view, it should only be wrong for a person to operate or purport to do money-lending business when not registered as a company. There, the law should bite.”

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