Understanding Uganda’s Interest Rate Cap: Opportunities and Challenges for Borrowers

In November 2024, Uganda introduced a cap on interest rates charged by money lenders under Tier 4 and microfinance regulations, limiting rates to 2.8 percent per month (33.6 percent annually). This policy seeks to shield borrowers from historically predatory rates, which often exceeded 20 percent monthly in informal and unregulated markets. Lower cost of credit can reduce debt stress and encourage borrowers toward formal financial institutions where consumer protection mechanisms exist. However, financial experts highlight potential downsides: lenders may become more risk-averse, reducing credit supply to individuals or enterprises without collateral or documented incomes. For smallholder farmers, informal traders, and microenterprises, reduced willingness from lenders to extend credit could constrain access to vital seasonal loans. Borrowers should therefore balance the benefits of lower interest costs with proactive credit planning and engagement with regulated lenders.