They offer quick soft loans to desperate clients who would want to finance their personal projects. But their viciousness has left many of their clients in utter despair.

Money lending is one of the fastest growing financial industries, being operated by shrewd individuals who are on the ready to take advantage of their clients' desperation to fleece the latter of even the little they already had.

Robert Ainemazima, 31, a resident of Namuwongo, a Kampala, suburb, forfeited his three brand new motorcycles valued at Shs 12 million to loan sharks. He was in desperate need of Shs 8 million to recapitalize his then ailing furniture business.

 He could not turn to his bankers because he owed the bank an outstanding balance of Shs 3 million. He found himself at the money sharks, and he was mesmerised at how quick and easy it was for him to obtain the loan.

 The money lenders just told him to complete a form and then attach his passport size photographs, then hand in his motorcycles as collateral. Within two days, money was at his disposal.

 Ainemazima was given four months within which to pay the loan. He was optimistic that he would be able to pay the loan since he had "ready orders" from some of his customers. But, this was not so. The four months elapsed without him raising sufficient money to pay the loan, and before he knew it; his motorcycles were up for auction.

 "I didn't know that it would come to this since I was assured of money from my customers' orders," he says. The process was so simple and quick and I didn't foresee any faults in the whole deal," he adds as he reminisces over his loss.

 Gullible clients

Most money lenders thrive on the ignorance and gullibility of the public. According to Charles Byanyima, the Executive Director of the Uganda Micro-finance Support Centre, the mainstream financial institutions and intermediaries have not done enough as to sensitize the public about shrewd money lenders, whom he refers to as "organised thugs". He says that money lending would be a worthwhile business only if the operators revealed the truth to their clients.

 "They can't tell you the truth because their idea is not to help you but to see how they can rob from you at the end of the day," says Byanyima.

 Byanyima argues that the problem is further compounded by the fact that people are shying away from the Savings Credit and Cooperative Organisations (Saccos), and yet they would have access to soft loans at lower interest rates. "The money is there at Saccos but people would rather run to private money lenders," he says.

Shrewd lenders

Nathan Were, a microfinance expert at Equity Bank contends that money lenders operate covertly, and that they do not do enough documentation since they could easily be tracked by police and other law enforcers incase anything went amiss. He also adds that the documentation is often vague so as to dupe the would-be clients.

"They don't want to be asked many questions, so they tell you to append your signature and go back later to collect the money," he intimates. 

Were argues that lack of clear and up-to-date documentation is what is helping fraudulent moneylenders go sot-free in case they are taken to court. "Where will you take him, he could easily deny ever seeing you," he adds.

Were further adds that the gullible clients are not safe when, in the letter of undertaking, they handover control of their money, not to a regulated commercial bank, but to an official of the company. He contends that in case a client insisted on a third party showing up, the shrewd money lenders would arrange for, say, a district official, who is affiliated to them, just to give a client some confidence. 

 A man only identified as Muwonge, who is well conversant with the dynamics of money lenders, reveals that in most cases, the money lenders are not interested in recovering the money they lend out to clients but in their clients' property. A client signs up a commitment form, indicating that he or she agrees to the terms and conditions of the money lenders.

 However, according to Muwonge, on the day a client is to bring money, the money lenders will make themselves un available, and besides, they will switch off their phones, all in attempt to frustrate the client into not paying up on time.

 Killer interest rates

In an effort to convince the clients, the money lenders will often say the interest rates are not that high either. But Were says that money lenders have got the most killer interest rates a financial intermediary would charge.

 For instance, he says that each month a client pays 3% of the interest, which-on the face of it-looks quite manageable.  But that is until one does the maths and realises that he will be paying interest of 36% per annum, which is almost twice the average commercial bank rates of about 20% for business loans, and 23% for salary loans.

 The rates are also as high as, if not higher than, the going rates in micro-finance institutions, which are also registered with the Central Bank.

 "To put it into perspective, let's look at a teacher of a secondary school who earns Shs 360,000 per month. He borrows Shs 5 million which he must pay back either in six, 12 or 24 months, depending on his negotiation skills. To pay this loan back in 24 months requires the teacher to commit to monthly deduction of Shs 219,133, inclusive of interest. His balance is Shs 140, 867," explains Were

 Going by Were's analysis, If a person wanted to clear this debt in one year, the figure is double the amount above Shs 438,266-way beyond that person's take-home package. This would in effect mean that a person's money is making a lot of profit fore the other entity, in business elsewhere.

 Regulation

When asked to comment on the legality of such businesses processing loans in respect to government and licensed commercial banks, Juma Walusimbi (pictured above), spokesperson of the Central Bank said these companies are neither commercial banks nor micro-deposit taking institutions.

 Hence they are not under the ambit of the Central Bank's supervision. Walusimbi advices that those who want to borrow money should only deal with financial institutions that have registered with Bank of Uganda and have been authorised to do business by the Central Bank.