With the COVID-19 global pandemic at its pinnacle, different individuals and institution are assessing their obligations and losses especially in the aftermath. The disease and a series government directives intended to curb down the spread have had a toll on almost everyone’s finances, and outstanding contractual obligations, leaving many at the mercies of God, government directives and the Law.
At the centre of this point of suspense and worry are borrowers who had (or have) outstanding financial obligations with Money Lenders and Tier 4 Micro Finance Institutions like SSACCOs. This in consideration of the fact that this ‘storm’ swept away their sources of income, making it almost impossible to honour their payment terms under their respective Loan Agreements.
For such a borrower, the first consideration in quest for safety would be to establish whether there was a ‘force majeure’ clause in their Loan Agreement. This Clause would be a perfect solution both legally and practically for such a borrower to assert that he/she was unable to honour the loan payment terms due to an unforeseen occurrence of government directives/ policies that have made it impossible for him/her to earn a living and thus perform their end of the agreement. Regarding this point, it is more realistic to invoke the force Majeure Clause on grounds of government policies, and not the Pandemic itself, as it may be counter-argued that ailments and diseases do not fall in the category of “acts of God”.
However in light of the fact that most borrowers find already made/typed standard loan Agreements and desperately sign due to the urgent need for funds, it would be rare to find a force Majeure Clause in those template one-paged Agreements that Money Lenders usually give.
In such a scenario, the borrower may rely on the contractual defence of Frustration where he/she pleads that that his/her intentions of honouring the contractual obligations were hampered by the occurrence of a pandemic or government directives that made the contract performance impossible. However another fort to turn to by such a borrower would be government guidelines through the line ministry, government department or Authority.
The Tier 4 Microfinance Institutions and Money Lenders Act of 2016 established the Uganda Microfinance Regulatory Authority (UMRA) with the mandate to license, Regulate and Supervise the Tier 4 Microfinance Institutions and Money Lenders.
In light of the foregoing, and after the Central Bank issued guidelines for all commercial Banks to follow during these tough times, all eyes were UMRA as the ‘shepherd’ to guide the money lending sector and to give solution to worrying money lenders and borrowers in there times and their aftermath.
Everyone affected is (of course) suggesting that the Authority issues a mandatory Moratorium with the effect of temporarily suspending loan Payments and accrual of interest until this ‘hurricane’ passes. Practically this would have a direct impact on the Agreements with an effect of a new loan Period, interest and payment terms to be discussed and agreed on by the lender and the borrower. It would be a consequential amendment of all loan Agreements falling under this category.
On April 8, UMRA issued the long awaited statement, which, unlike other government statements was in form of an Advisory. According to the statement, the Advisory note was for implementation of guidelines issued by the Government in relation to COVID-19.
The Authority further stated that the Advisory note was issued based on the assessment of the impact of COVID 19 pandemic on the Tier 4 Microfinance Institutions and Money Lenders, with the advisory silent on the impact the pandemic has had on borrowers.
The Advisory which covers operations and Administration is premised on the guidelines of the Ministry of health and the Bank of Uganda Monetary Policy statement for April 2020 which reduced the Central Bank Rate to 8%. The Advisory covers both operations and Administration mechanisms.
Regarding Operations, the authority advised that Tier 4 Microfinance Institutions and Money Lenders keep the Authority updated with emerging issues that are affecting their operations and further encouraged that they engage in open discussions on liquidity positions for specialised advice from the Authority to help manage and control withdrawals by members in case of SACCOS and to lend out funds on special terms. UMRA also advised all licencees who operate bank Accounts in Commercial Banks and qualify to be on the lookout to benefit from any possible waivers announced by the central Bank. All these seemed to benefit of the Lenders, and were seemingly intended to protect the sector and the country’s Micro economics after the Pandemic.
What is seen to have a direct benefit/impact on the borrowers are the next 6 Advisory points which advise Tier 4 Micro Finance Institutions and Money Lenders to openly discuss portfolio quality, productivity, delinquency positions to avoid surprises. The advisory further advises the lenders to propose Adjustments on Loan provisioning to enable institutions and clients to adhere to the Changed situation due to COVID-19, to give a moratorium of up to 3 months from April 2020 on Loan instalments, and on Interest accrued and to continue to collect repayments from customers who want to repay based on original schedule to avoid any accrued interest for the moratorium period.
The authority further advised that Lenders may accrue interest on outstanding Loans during the moratorium period, though the calculated accrued Interest from the moratorium period ought not to exceed interest rate agreed in the original Agreement, and that Lenders ought to inform borrowers directly about the moratorium on loan tenor, instalment Amount, accrued interest and take consent for all changes.
On the other hand the advisory on operation seemed to be for the direct benefit and protection of the borrowers. UMRA among others advised Tier 4 Microfinance Institutions and Money Lenders to suspend physical Client contact including client mobilisation and loan recoveries, and not taking advantage of the health situation to cease collateral of borrowers rather than considering a moratorium period for loans.
A deep analysis of the Advisory by UMRA draws a clear conclusion that just as titled, the paper is a mere advisory with no force of law and thus can’t be relied on by any borrower for protection. This is in comparison with other government Departments who have been issuing directives/guidelines that were compulsory to all sector players breach of which would attract due punishment.
A mere read of this advisory suggests that UMRA was just giving direction to the sector, and that the said pointer were not directives that had to be followed. For example the Lender has the discretion of giving the moratorium or choosing to constantly demand payment from the borrower without due regard to this Advisory. It is therefore sad to say that the advisory is only but a leaking roof for the worried borrowers, who remain victims of the situation, just at the mercies of the force Majeure clauses and the defence of frustration as herein discussed.
Worth noting is the President’s reply in his address on 14th April 2020 wherein he was asked about the fate of Ugandans with outstanding loans. The president rather than issuing a presidential directive on the same merely uttered out his hope that financial institutions would understand to issue an extension for loan repayments, and not confiscate people’s property. This too clearly falls short of a comforting black and white solution.
In light of the above, I strongly advise the Ministry of Finance directs the Authority to come up with a compulsory directive to address this issue and come to the rescue of countless Ugandans in this dilemma.