The High Court has ruled that it is illegal for unlicensed money lenders to charge interest on a loan. Justice Esta Nambayo on September 20 observed that money lenders without licences under the Microfinance Institutions and Money Lenders Act, 2016, cannot sue borrowers for breach of agreement.
“The defendant’s conduct of lending money to the plaintiff without a money lender’s licence contravened Section 84 (1) a of the Tier 4 Microfinance Institutions and Money Lenders Act, 2016 and it was, therefore, illegal and wrong for her to levy interest of 20 percent or at all on 20 percent on the principal sum of Shs10m that was lent to the plaintiff,” ruled Justice Nambayo.
The decision of the court arose out of a law suit in which Ms Shilla Ninsiima in 2016 lent Shs10m to Mr Kagumaho Kakuyo at an interest rate of 20 percent, payable in one month.
Court documents show that Mr Kakuyo failed to pay back as agreed.
Further, the court documents show that on December 9, 2017, the two parties signed a debt discharge agreement whereby they agreed that the outstanding amount had increased to Shs42m to which Mr Kakuyo made a payment of Shs24m.
“In March, 2018, the plaintiff (Mr Kakuyo) was summoned to police on charges of issuing cheques that were dishonoured. It is the plaintiff claim that while in police custody, the defendant (Ms Ninsiima) with the help of police, forced him to sign acknowledgement that the outstanding amount of the loan was Shs78m hence this suit,” read in part the court documents.
Justice Nambayo further held that Mr Kakuyo was not indebted to Ms Ninsiima of Shs53m since the former’s evidence of having been under duress while in police custody was not controverted in court.
Following the ruling, Mr Kakuyo is now not mandated to pay an interest on the Shs10m he obtained from Ms Ninsiima six years ago.
“It is hereby, declared that the plaintiff (Mr Kakuyo) is neither liable nor indebted to the defendant (Ms Ninsiima) in respect of a loan of Shs10m nor in any amount arising therefrom as interest from the money borrowed,” held Justice Nambayo.
Adding: “A permanent injunction is hereby, issued restraining the defendant (Ms Ninsiima), her agents or any one acting on her instructions from enforcing and or making any attempts to recover any money arising from the Shs10m that the plaintiff (Mr Kakuyo) borrowed from the defendant.”
Anthony Waseka contributed to this article
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