Changes to the Microfinance Act now prohibit lenders from using harassment, violence or threats during debt recovery.
Individuals who borrowed loans from non-deposit taking microfinance institutions will now be shielded from predatory debt collection tactics after a new law took effect on January 1, 2025.
The changes to the Microfinance Act now prohibit lenders from using harassment, violence or threats during debt recovery.
The new law also bans the harassment of guarantors or any person connected to the debtor.
Parliament last month amended the Micro-Finance Act through the Business Laws (Amendment) Bill, 2024 to introduce consumer protection mechanisms that stop lenders from employing illegal tactics against defaulting borrowers.
“A non-deposit-taking microfinance business (MFB) shall, in the course of debt collection or loan recovery a) not harass, abuse or oppress a borrower, guarantor or any person in connection with collection or recovery of a debt, b) not threaten or use violence or illegal means in collection or recovery of a debt, or c) not use obscene or profane language to a borrower, guarantor or any person in connection with collection or recovery of a debt,” section 53 (2) of the Microfinance Act now states.
Maintain borrower confidentiality
The new law mandates a non-deposit-taking MFBs to provide consumers with accurate information about loan terms, financial costs and maintain borrower confidentiality, thus promoting transparency in the sector.
The new law is intended to protect borrowers of physical credit, in the same way as borrowers of digital credit.
It specifically requires a non-deposit-taking MFBs to furnish borrowers with accurate information on the procedure and conditions for lending and recovery, and to inform borrowers — prior to the acquisition of a loan — of the financial costs associated with servicing the micro-loan.
The new law further requires MFBs to comply with the requirements of Article 31 of the Constitution and the Data Protection Act in lending loans and recovery of debts. It stipulates that “every person has the right to privacy, which includes the right not to have their possessions seized.”
The law further prohibits microfinance businesses from charging interest, fees or penalties unless the same is prescribed in an agreement between the lender and the borrower.
The law allows a person who was conducting non-deposit-taking microfinance business before the commencement of the Act to apply for a licence within six months.
“An applicant under subsection (1) may continue to conduct non-deposit-taking microfinance business pending determination of the application subject to this Act, Regulations made under this Act and any conditions issued by the Central Bank,” the Act states.
