Will Government of Uganda arrest money lenders who take national IDs as collateral?
In a decisive move to curb exploitation in Uganda’s informal lending sector, the government has announced a nationwide crackdown on money lenders who illegally seize National Identity Cards (IDs) as collateral. The directive, issued by State Minister for Microfinance and Small Enterprises, Mr Haruna Kasolo Kyeyune, comes amid growing concerns that the practice is undermining the national ID renewal and registration process.
Speaking during the launch of the Microfinance Forum in Kampala on June 17, 2025, Mr Kasolo described the seizure of National IDs as both “exploitative and illegal,” and warned that any individuals or institutions found in possession of another person’s ID will face arrest.
“Money lenders are extorting Ugandans, and we cannot allow it to continue,” Mr Kasolo declared. “I have written to the Inspector General of Police asking for full support in cracking down on this exploitation, and I have instructed all Resident District Commissioners to close down money lending shops and arrest anyone found in possession of someone else’s National ID.”
A Nationwide Obstacle
The crackdown is tied closely to the ongoing mass registration and renewal exercise for National Identity Cards across Uganda. Many citizens, Mr Kasolo noted, are unable to access these crucial services simply because their IDs are locked away in money lenders’ safes.
“At this time, when every citizen is required to renew their National Identity Cards, many do not have access to them because they are held by money lenders,” he said.
The issue has become so widespread that, according to a 2024 internal report by the Ministry of Internal Affairs, at least 149 National IDs were recovered from lenders during previous enforcement sweeps. Still, the problem persists due to poor regulation and limited consumer education.
Economic Disruption and Regulatory Gaps
Uganda’s microfinance sector has long operated in a grey zone, especially at the lowest levels where village lenders, unregistered digital platforms, and informal SACCOs dominate. While the Tier Four Microfinance Institutions and Money Lenders Act (Cap 61) was enacted to regulate these entities, enforcement remains weak. Many lenders charge annual interest rates exceeding 60 percent, with projections suggesting this could reach up to 70 percent in 2025/2026, according to Ministry of Finance estimates.
“Government resources, especially under the Parish Development Model, are being misused,” Mr Kasolo lamented. “Instead of investing in agriculture or small businesses, beneficiaries are using this money to pay off exploitative debts.”
The government has also suspended licensing for new digital lenders, a segment Mr Kasolo says is operating “in a legal vacuum.”
“They are worse than traditional lenders. At least with physical lenders, you can trace them. These online lenders are predatory, faceless, and unregulated.”
Lenders React
Not everyone in the sector is turning a blind eye. Mr Jonan Kandwanaho, President of the Money Lenders Association of Uganda, acknowledged that some lenders are flouting regulations and charging exorbitant rates.
“There are lenders who charge reasonably—some as low as 2.8 percent per month, which is about 30 percent annually. That’s lower than some commercial banks,” he said in an interview. “But those taking National IDs as collateral are misguided and operating outside the law.”
He emphasized that IDs are non-transferable and cannot be sold or used to recover debt, rendering them useless as collateral. “Those who do this are simply uninformed,” he added. “We need to educate lenders and borrowers alike.”
The Bigger Picture
This move is part of a broader effort by the Ugandan government to clean up the microfinance sector, which plays a crucial role in financial inclusion but has also been a hotspot for exploitation. According to data from the Bank of Uganda, only 38 percent of Ugandan adults have access to formal banking services, pushing millions toward alternative financing options—many of which are unregulated.
Mr Kasolo reiterated that while micro-lenders have a role to play, the government will not tolerate practices that violate citizens’ rights.
“We want sanity in the sector,” he said. “It is very dirty and many Ugandans are crying. This impunity must end.”
Looking Ahead
Enforcement is already underway, with RDCs and police expected to begin inspections of lending shops across districts. The Ministry of Internal Affairs is also working with the National Identification and Registration Authority (NIRA) to streamline processes for recovering withheld IDs.
Meanwhile, the public is being encouraged to report lenders who are holding National IDs and to avoid engaging with institutions that demand personal documents as loan security.
As Uganda pushes forward with its National ID renewal campaign—critical for voting, financial services, and social programs—the government’s stance sends a strong message: Identity is not collateral.
