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A loan involves receiving a sum of money or valuable assets from a lender, with an agreement to repay the borrowed amount along with additional charges known as interest or fees at a later date.

In Uganda, financial services have evolved to include various options beyond traditional banks. Non-deposit microfinance institutions have emerged as key players in providing financial assistance to individuals and small businesses.

These institutions promote financial inclusion by offering accessible and tailored loan solutions. In this article, we will explore the process of obtaining loans from non-deposit taking microfinance institutions in Uganda and their benefits.

What are non-deposit microfinance institutions?

Non-deposit microfinance institutions are specialized financial entities that provide financial services, including loans and savings, to low-income individuals and small businesses. Unlike traditional banks, non-deposit microfinance institutions focus on serving marginalized and underserved communities, empowering them economically and socially.

They are smaller but must be registered and licensed by the Uganda Microfinance Regulatory Authority in order to extend their services to clients.

Currently, there are 150 licensed non-deposit taking microfinance institutions in Uganda. You can access the list here.

What you need to know before hand

  • Non-deposit microfinance institutions can grant micro-loans (loans of small amounts of money).
  • The loans must be granted in Uganda shillings.
  • The loans can be granted with or without collateral (security). It is illegal to use a National ID or Refugee ID as security.
  • The lender is entitled to charge simple interest from the date of default until the sum is paid.

Important considerations for borrowers

When dealing with non-deposit microfinance institutions for a loan, it's crucial to approach the process with caution and awareness of your rights and the obligations of the institution to you. Here's what you should keep in mind:

Seek Transparency: Before taking a loan, ask the microfinance institution for accurate information about the loan procedure and its conditions. Be sure you fully understand what you're getting into.

Know the costs: The institution must inform you, in advance, about the financial costs associated with acquiring and servicing the microloan. Don't proceed until you are aware of the complete picture, including all potential costs involved.

Your privacy matters: Ensure that the microfinance institution respects the confidentiality of your information. Your personal and financial details should be handled with care, and you have the right to know how they will be used.

Understand your rights and duties: It's the institution's responsibility to make you aware of your rights and duties concerning the acquisition of micro-loans. Familiarize yourself with these to make an informed decision.

Review procedures and terms: The institution should allow you to examine crucial details such as the loan application and approval procedures, the micro-loan agreement, loan amount, interest rate, repayment schedule, and the consequences of non-performance. Take the time to understand each aspect.

Sign with caution: Before signing a loan agreement, carefully review all terms and conditions. If anything is unclear, seek clarification. Only proceed when you are confident in your understanding of the agreement.

The loan agreement agreement should have the following

  • The names of the borrower.
  • The amount of the loan.
  • The purpose and draw down period of the loan.
  • Repayment date or maturity date.
  • Repayment schedule of the loan
  • The total amount of interest to be paid.
  • The penalties in case a borrower is unable to fulfil a loan obligation.
  • Security or collateral.
  • The procedures for settlement of disputes.

Currently, there are 150 licensed non-deposit taking microfinance institutions in Uganda. You can access the list here.

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