In a groundbreaking judgment, Gulu High Court Judge George Okello has ruled that unregistered individuals can charge interest on loans extended to friends or family.
This landmark decision legalizes a previously informal practice of helping acquaintances in need. The ruling stemmed from a case in which one party was ordered to pay Shs347 million for a loan, along with associated costs.
Acknowledging Real-Life Scenarios
Judge Okello emphasized that courts must recognize the everyday reality in Uganda, where people assist friends and family during personal crises.
He stated that it’s against common sense to suggest that interest-free loans should be mandatory for friendly financial aid.
Informal Loans Validated
The judge clarified that there is no Ugandan law preventing individuals from lending to friends, acquaintances, or group members and charging agreed-upon interest.
Existing laws regulating money-lending businesses do not interfere with the freedom of individuals to obtain loans from acquaintances.
The case revolved around a dispute between friends, one of whom lent money to the other. The agreement included a fixed interest rate and collateral. When the borrower failed to repay the loan, the lender sought court intervention.
Judge Okello determined that the lender, being a natural person, did not qualify as a money lender under Ugandan law, which applies to companies.
The security clause in the agreement did not imply money lending. The judge found that the borrower’s reference to a section of the law on unlicensed money lending was irrelevant in this context, as there was no evidence of the lender representing themselves as a money lender.
The ruling brings clarity to informal lending practices in Uganda, allowing individuals to charge interest on loans to friends and family, provided the terms are mutually agreed upon.