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Microfinance Regulatory Authority Backs Ban On Use of National IDs As Collateral

The Uganda Microfinance Regulatory Authority (UMRA) has backed the decision to ban the use of national Identity cards as collateral to secure loans from money lenders, and asked the players in the industry to look for other forms of collateral.

In September 2023, Uganda Police arrested two suspects after they broke into T.M.K Loans Services in Wakiso district and stole 104 national IDs that people had deposited as collateral to obtain loans and following that arrest, the National Identification and Registration Authority (NIRA) issued a legal alert, citing Section 69 of the Registration of Persons Act 2015, and warned Ugandans not to use  national IDs, arguing that despite being the cardholders, national IDs still remain a property of the Government of Uganda and therefore can’t be used as security to obtain personal loans.

Edith Tusubira, Executive Director UMRA in a media interview welcomed NIRA’s directive to ban the use of National IDS as collateral describing such a decision as illegal, although she fell short to cite the particular provision anyone doing so would be flouting, much less point out the penalty people indulging in such practice would face.

She said, “I would like to discourage the borrowers, if you are requested to hand in your IS, please remind the lender that that isn’t the best instrument. I want to encourage all lender to look for other collateral instruments like land titles. But we also as UMRA, are working with URSB, another Government body where we implement what we call simple, by simple, you allow somebody to borrow without necessarily having a fixed land title. The arrangement is through movable titles.”

According to UMRA, it isn’t only National IDs that are being abused by money lenders but borrowers are being forced to part with other sensitive documents like ATMs to secure loans where she remarked, “That instrument is governed by NIRA, so for data protection, it is prohibited that you use an ID as collateral. I also want to remind the public that also other documents like ATM Cards, like transfer forms, deposit accounts books, warrant cards and other instruments aren’t supposed to be used as collateral.”

Tusubira said that the Authority is working with Uganda Registration Services Bureau (URSB) to come up with other items that can be used as collateral for individuals who do not have land titles.

It should be recalled that in March 2019, the Security Interest in Movable Property Act, 2019 came into force and this provides for the use of movable property as collateral for credit and this law was intended to expand the scope of security used other than the common land, houses, salaries that were being used.

Security Interest in Movable Property Act, 2019 now allows borrowers to use security like; home appliances, treasury bills, animals, crops among other items as security collateral to obtain loans.

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