As Uganda proceeds with the nationwide renewal, registration, and replacement of National Identity Cards (IDs), the government has launched a crackdown on money lenders who illegally hold onto National IDs as collateral for loans.
State Minister for Microfinance Haruna Kasolo stated that many Ugandans are unable to participate in the ID renewal process because their documents are being held by lenders, a practice he described as both exploitative and unlawful.
“Money lenders are taking advantage of people, and we won’t tolerate it,” Mr. Kasolo said during the launch of the Microfinance Forum in Kampala on June 17. He revealed that he has requested support from the Inspector General of Police to enforce the crackdown and instructed Resident District Commissioners to shut down offending money lending businesses and arrest anyone found with someone else’s ID.
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The minister emphasized that using National IDs as loan security is hindering the mass registration drive and contributing to disorder in the microfinance sector. He noted that the move is part of a broader presidential initiative aimed at reforming the largely unregulated lending environment plagued by high interest rates and poor consumer protections.
Mr. Kasolo also warned that government financial aid, especially through the Parish Development Model (PDM), is being misused to settle debts owed to unscrupulous lenders rather than being invested in productive ventures. “These resources are meant to alleviate poverty—not benefit predatory lenders,” he said.
Additionally, the government has halted the licensing of new digital lenders due to growing complaints about their unethical practices and inflated interest rates. “They’re even worse than traditional lenders. At least physical lenders are traceable,” he said, pointing out the lack of regulation in the digital lending space.
Last year, the Ministry of Internal Affairs recovered 149 National IDs from money lenders during enforcement operations. Although the Tier Four Microfinance Institutions and Money Lenders Act (Cap 61) exists to regulate the sector, Mr. Kasolo acknowledged that weak enforcement has left gaps that allow exploitation to persist.
According to Ministry of Finance data, while commercial banks charged interest rates around 18% per annum in the 2023/2024 financial year, SACCOs charged up to 36%, and money lenders surpassed 60%. Projections for 2025/2026 suggest rates could climb to 70%.
Jonan Kandwanaho, President of the Money Lenders Association of Uganda, admitted that some lenders are abusing the system. He noted that many registered lenders offer rates as low as 2.8% per month (30% annually), and said that lending can still be profitable without excessive charges.
Kandwanaho condemned the seizure of National IDs as collateral, calling it not only illegal but also impractical. “An ID can’t be sold or used to recover loans. Those doing this need proper training,” he said, emphasizing the need for both stricter enforcement and greater public education to bring order to the sector.
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