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Home > News > It’s Not Illegal To Privately Lend Another Person Money – Court Rules, Directs Businessman Ndyareeba To Repay Shs 230 Million Debt

It’s Not Illegal To Privately Lend Another Person Money – Court Rules, Directs Businessman Ndyareeba To Repay Shs 230 Million Debt

Businessman Ronnie Ndyareeba hoped to take advantage of the Microfinance Institutions and Money Lenders Act 2016 to refuse paying a loan he acquired from a business associate Joseph Arinaitwe. However, court has ruled otherwise.

In an application arising from the main suit which compelled Ndyareeba to pay an outstanding sum of Shs230m, his lawyers argued that lending money outside the Act is illegal since, Arinaitwe didn’t have a licence to engage in the business of money lending.

However, Justice Boniface Wamala in his January 5 ruling said that that interpretation of the law is misleading.

“According to the said law, for a transaction to be governed by the provisions of the Act, the lender has to be a registered company, licensed to lend money as a business. Lending as a business is conducted in accordance with the rules of commerce. The most predominant of the rules is that the lender charges interest on the money. This in no way means that a person cannot lend outside the framework of the said law. There is nothing illegal either within the said framework or under any other law for a person to lend money to another person under agreement. What is illegal is for a person to do so as a business without a license or without compliance with existing provisions of the law,” Matooke Republic quoted Wamala to have stated.

Arinaitwe had advanced the money to Ndyareeba as a loan on personal terms and there was no interest charged to indicate that it was a business transaction.

“There is no evidence that the Respondent was engaged in the business of money lending without a licence. There is evidence that the transaction in issue was a private arrangement between persons known to each other. There is nothing illegal about such arrangement,” Wamala stated in his ruling.

Brief background

Arinaitwe advanced his cousin Ndyareeba money to the tune of Shs257m between 2017 and 2018.  The two entered a Memorandum of Understanding where the last payment date was supposed to be 19th April 2019. Ndyareeba issued post-dated cheques as security for payment of the borrowed monies. The Defendant was unable to pay within the agreed period. Ndyareeba only paid Shs27m leaving a balance of Shs230m.

Defence of coercion thrown out

Ndyareeba also wanted court to declare the Memorandum of Understanding he signed indicating when he would repay the money as void because he signed it “under coercion.” However, the judge faulted him saying that there were no particulars and hence no evidence of such coercion.

“The only claim is that the signing of the said agreement followed a threat by the Respondent to commence criminal proceedings against the Applicant. Certainly, a threat to commence legal proceedings against another party cannot amount to coercion within the law. For it to amount to coercion, the exertion of force must be based on the taking of actions outside the law,” the judge ruled. Justice Wamala ordered Ndyareeba to pay the outstanding Shs230m debt, plus costs of the application and the main suit.

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