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Ugandan banks have, under pressure from the central bank, agreed to drop a long-practised, but infamous practice of ‘fining’ customers for settling their outstanding loan obligations early.
According to a letter seen by this publication by the Uganda Bankers Association (UBA) to the Central Bank’s Executive Director Supervision Bank of Uganda, the association’s Executive Director, Wilbrod Humphreys Owor said that all member banks had agreed to abolish the practice “with immediate effect”.
“We write regarding the above subject matter, (Early Repayment Charge on Outstanding Loans ) discussed at the Governor’s meeting with member CEOs on 23rd August 2023 and your follow-up letter of 12th September 2023, Ref EDS.714.2 on the same matter. This correspondence serves to notify you that at our monthly CEO’s meeting held on Friday 13th October 2023, a decision was reached to drop/abolish the practice of early loan repayment fees/charges on outstanding loans across our membership/industry. The meeting further agreed that BOU be notified of this decision with immediate effect and that members handle applicable communication to their customers as appropriate. We thank you for your stewardship and count on your usual support,” Mr. Owor wrote in his letter, Ref: UBA/SEC/2023/127.
The practice has been a subject of public outcry and criticism from consumer organisations as well as the central bank, arguing that this increases the cost of borrowing.
The letter is copied to the Deputy Governor, Bank of Uganda, as well as the Chairperson and all member CEOs of the Uganda Banker’s Association.
Uganda Bankers’ Association (UBA) is an umbrella organization for financial institutions licensed and supervised by the Bank of Uganda. Established in 1981, UBA is currently made up of 26 commercial banks, 2 development Banks and 8 Tier 2 & Tier 3 Financial Institutions.