ON SPOT! Staffer Accuse Bank of Africa Uganda of Phantom Overdrafts, Provident Fund Misuse, and Economic Captivity

Kampala, Uganda – Fresh evidence has emerged in the explosive case against Bank of Africa Uganda Ltd, placing the lender at the heart of what staff members describe as a systemic scheme of financial exploitation, coercion, and misappropriation targeting both customers and staff.

In addition to the High Court affidavit filed by former staff member Michael Mwesigwa exposing coercive loan clauses, a letter to the Governor of Bank of Uganda dated September 8, 2025 and court documents reveal shocking allegations of phantom overdrafts, Provident fund manipulation, and constructive bondage within the bank’s internal loan structures.

How did we reach here:

Micheal is a former Staffer at Bank of Africa. While still there, he got a mortgage loan of Sh 256,087,165, personal premium loan of Sh29,710,891 , and classic loan of Sh8,401,857.

He later exited before clearing his loans and the bank could not afford to lose their money.
Consequently, the bank amalgamated all his loans into a single overdraft facility and went on to recover their monies in ways he calls ‘illegal’. First, his mortgaged property was sold at Sh 180,500,000.
The bank also raided his Provident Fund accounts and withdrew proceeds amounting to Sh46,364,982 on 15 September 2022, and interest earned of Sh 1,455,655. The bank still demands him.
Left with no option he has now run to authorities including court protesting the illeguralities in the recovery.

The Contracts — Clause 8 and the Architecture of Financial Bondage

At the center of the controversy lies Clause 8 of the bank’s loan contracts.

According to a supplementary affidavit filed in the High Court by Micheal, Clause 8 allows the bank to enforce automatic loan recovery, overdraft conversion, and collateral seizure upon resignation or termination of employment — without the borrower’s consent or opportunity to renegotiate.

“The coercive, unconscionable, and unconstitutional nature previously attributed to Clause 8(a) applies to Clause 8 in its entirety,” Mwesigwa told the court.

Critics say the clause is designed not just to protect the bank’s interests but to enslave staff borrowers to their jobs, making resignation financially impossible and termination catastrophic.

“This is a textbook case of corporate overreach. Contracts like these strip individuals of their constitutional right to fair treatment and due process,” a Kampala-based commercial lawyer told this publication.

If the court agrees, it could force banks across Uganda to rewrite their loan agreements — setting a precedent that puts human rights above predatory lending.

Phantom Overdrafts — The Loans That Never Existed

The scandal deepens with allegations that Bank of Africa has been creating phantom overdrafts — loans that customers never applied for, signed, or approved.

Mwesigwa reveals how, upon his resignation, the bank unilaterally amalgamated his mortgage and personal loans into a new commercial overdraft facility.

This facility, never backed by a signed agreement or registered mortgage variation, was then used to justify the sale of his mortgaged property.

“The bank has been issuing and enforcing overdraft facilities against staff who exit employment — without executing, signing, or registering any variation of the original mortgage deed,” the complaint notes.

Legal experts point out that this directly violates the Mortgage Act, 2009, which requires that any change in loan terms be documented, signed, and registered. Without this compliance, the overdraft is unlawful and unenforceable.

Consumer advocates warn that this could represent systemic fraud, where loans are manipulated to trap borrowers in perpetual debt and justify asset seizures.

“Phantom overdrafts are a financial illusion — but with very real consequences for the victims,” one advocate said.

Provident Fund Abuse — Turning Retirement Savings into Debt Traps

Perhaps the most explosive allegation is that Bank of Africa has been misappropriating employees’ Provident fund contributions to offset debts without consent.

Mwesigwa alleges that upon his resignation, the bank withheld his retirement savings and coerced him into redirecting them to pay off the phantom overdraft — bypassing fund administrators in the process.

“This conduct violates the Uganda Retirement Benefits Regulatory Authority Act and undermines the integrity of staff savings,” the affidavit warns.

The practice, if systemic, means that employees’ hard-earned retirement funds are being weaponized against them — used as leverage to enforce unfair loans and illegal overdrafts.

Constructive Bondage: Modern-Day Financial Slavery?

The combined effect of preferential staff loan rates, Clause 8(a) enforcement, and phantom overdrafts has created what Mwesigwa calls “constructive bondage.”

The system, he argues, deters staff from resigning even in cases of mistreatment, punishes those who are terminated, and locks ex-employees into a cycle of financial dependency.

“This structure mirrors the coercive logic of slave labor and violates constitutional protections against economic captivity,” he warned regulators.

Regulatory Intervention Demanded

Mwesigwa has asked the Bank of Uganda, the Uganda Retirement Benefits Regulatory Authority (URBRA), and the Attorney General to intervene urgently. Among his demands are, an investigation into Bank of Africa’s staff loan enforcement practices,an audit of how Provident fund contributions are handled, a directive ensuring Provident funds are released immediately upon staff exit, without loan clearance conditions and sanctions against the bank for violating the Mortgage Act and constitutional protections.

By going to court, he is seeking judicial interpretation of the rights violated by the bank’s actions.

Wider Implications for Uganda’s Banking Sector

The allegations, if proven, go far beyond a private contractual dispute. They point to a systemic crisis of trust in Uganda’s banking industry, raising fears that other banks may be operating similar schemes hidden behind complex loan agreements.

Already, calls are growing for Parliament and the Central Bank to open a public inquiry into staff loan practices, retirement benefits management, and the role of the Uganda Bankers Association in monitoring compliance.

Bank of Africa’s Reputation on the Line

Bank of Africa Uganda, part of a multinational network with operations in 20 countries, risks irreversible reputational damage. Civil society groups have branded the scandal “corporate tyranny,” while consumer advocates insist that regulatory silence would embolden other financial institutions to follow suit.

For now, the case is shaping up to be one of the biggest banking scandals in Uganda’s history, with potential ripple effects across Africa if linked practices are uncovered in other jurisdictions.

As one Kampala-based legal analyst put it: “This is not just about one man’s mortgage. This is about whether Ugandan banks believe they are above the Constitution.”