Digital loans are fuelling new debt crisis
Not long ago, borrowing money carried a heavy dose of shame. Families whispered about the relative who had mortgaged goats or sold a piece of land to clear a debt.
Today, debt is rebranded, shiny, digital, and just a tap away. Across Uganda, borrowing has become as effortless and as casual as buying roasted maize from a roadside vendor. But beneath this illusion of ease lies a quiet crisis, one that is eroding family trust, breaking friendships, and trapping entire communities in cycles of debt.
For generations, Ugandans built wealth slowly. People saved patiently to buy a cow, build a house, or host a wedding. Now, all it takes is a few taps on a smartphone. A notification pops up: “Congratulations, your loan has been approved!”
The money arrives instantly, no queues, no paperwork, no questions asked. It feels like magic. But magic has a price. Behind the glow of convenience are annual interest rates that soar beyond 100 per cent, unlicensed apps spreading unchecked, and loan sharks waiting in the shadows.
The “quick loan” culture that once promised empowerment has hardened into invisible chains of debt. Ronald, a university student in Mbarara, borrowed Shs 150,000 from a moneylender to impress his friends at a birthday party.
With 20 per cent monthly interest and no steady income, he defaulted within two months. The lender arrived at his parents’ home demanding repayment. His father sold goats to clear the debt. “It was just one party,” Ronald says quietly. “
But it cost me my father’s trust. I wish I had never borrowed.” Stories like Ronald’s are now painfully common. Families sell land or cattle, or pull children out of school to cover unpaid loans.
People stop answering calls, disappear from WhatsApp groups, and once-thriving Saccos collapse when members default. A 2022 Financial Consumer Protection Survey by FSD Uganda found that 61 per cent of digital loan users borrow to cover daily consumption, not investment, fueling a cycle of short-term relief and long-term dependency.
Under Kampala’s orange streetlights, Kanyijuka, a single mother, scrolls through a mobile app offering Shs 200,000. It promises groceries and transport money. By morning, hidden fees and interest nearly double her debt. She lies awake, wondering how to repay.
Across Uganda, millions live the same reality: easy money today, crushing debt tomorrow. Borrowers face threats, insults and public shaming from lenders who operate more like enforcers than financiers. Ugandans now borrow for weddings, parties, gadgets, even daily meals.
Few borrow to invest or grow. The boom in mobile loan apps has bred a culture of instant gratification that rewards consumption over discipline. Borrowing itself isn’t the enemy, it’s how and why we borrow.
A disciplined borrower asks the hard questions: Is it important? Is it necessary? Is it urgent? A loan should bridge you toward growth, not bury you in stress. Financial literacy is no longer optional; it’s a survival skill. Licensed banks and regulated Saccos typically charge 15 to 25 per cent annual interest, depending on the facility.
Unregulated apps and moneylenders often charge 10 to 30 per cent per month, which compounds to over 100 per cent annually. The difference isn’t just arithmetic; it’s the line between building a future and falling into financial slavery.
Uganda’s borrowing culture has expanded rapidly. According to the 2023 FinScope Uganda survey, 51 per cent of adults (12.5 million people) borrowed in the past five years. Of those, just 32 per cent used formal channels like mobile money or Saccos.
By September 2023, the Uganda Microfinance Regulatory Authority (UMRA) had licensed 1,302 moneylenders serving 2.5 million customers with a Shs 1.2 trillion loan portfolio. Yet more than 1,000 illegal lenders still operate beyond regulation.
In August 2024, the government identified 59 illegal online loan apps exploiting Ugandans without oversight or consumer protection. Huzaifa, a small shop owner, needed Shs 10 million to restock.
He compared a licensed Tier 4 moneylender charging 2.8 per cent per month with an unlicensed app offering instant cash at 15 per cent. Huzaifa chose the regulated lender, budgeted carefully, and repaid on time. “The right loan built my business,” he says.
Oprah wasn’t as lucky. She borrowed Shs 500,000 from a digital app for medical bills. Missing one payment doubled her debt. “They called my boss, my relatives,” she recalls. “I felt humiliated.”
Within months, she owed Shs 1.2 million. The stress damaged her relationships and mental health. These two stories reveal the same truth: who you borrow from can determine whether debt becomes a bridge, or a burden.
The government has tried to rein in predatory lending. Under Legal Notice No. 21 of 2024, Tier 4 moneylenders are capped at 2.8 per cent monthly interest (about 33.6 per cent annually).
Authorities have recovered seized national IDs and shut down rogue apps. President Yoweri Museveni himself condemned lenders charging more than 240 per cent annually, calling them “modern-day extortionists.”
Still, enforcement remains a challenge. Many operations remain underground, and many borrowers fear speaking out. Ultimately, the issue is not just financial, it’s moral. Debt, once a last resort, is now a lifestyle.
Borrowing has become normalized, even celebrated, in a society where wages lag behind living costs. The fairytale of easy money can end two ways: happily, with loans building businesses and families, or tragically, with assets seized and households torn apart. Convenience isn’t always good. Sometimes, it’s the poison that kills slowly.
The real cost of financial indiscipline isn’t just measured in shillings. It’s measured in lost dignity, broken trust, and sleepless nights.
The principle remains simple: If a loan doesn’t create value greater than its cost, it’s not worth taking. Borrow wisely. Borrow rarely. And when you must, let every borrowed shilling work for growth, not stress.
The writer is a chartered accountant and a chartered tax advisor.
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