October 17, 2023
GULU, Uganda | In a recent ruling, Judge George Okello of the Gulu High Court has affirmed that private individuals, even if not registered as formal money lenders, can legally charge interest on loans extended to friends and relatives. This landmark judgment highlights the real-life dynamics of lending and borrowing within personal networks.
The case that led to this significant decision involved Mr. Stephen Khesmodel Omony, who took his long-time friend, Mr. Denis Michael Olara, to court for failing to repay a loan. Mr. Olara had attempted to evade his debt obligations by invoking the law regulating formalized money lending businesses.
Judge Okello dismissed Mr. Olara’s counterclaim, asserting that there is no law in Uganda that prohibits individuals from lending to friends, acquaintances, or members of a group while charging interest on the loan, provided both parties mutually agree. The judge’s decision, dated October 5, reaffirms the freedom of individuals to lend and borrow within their personal circles, preserving the doctrine of freedom of contract.
Judge Okello emphasized the necessity of recognizing the reality of Ugandan society, where people often extend financial help to friends and family during emergencies. He stated that friendly loans with interest are a common practice, and barring such transactions would be an erroneous interpretation of the current lending landscape. Moreover, the judge underscored the role these informal loans play in providing quick access to capital for various purposes.
The ruling highlights the nuanced nature of this issue, as different judges have provided varying interpretations. Some argue that friendly loans should remain interest-free, with the borrower only expected to return the principal amount. This decision brings clarity and reaffirms the practice of charging interest on loans between friends and family, provided it is mutually agreed upon.
The legal landscape surrounding informal lending and borrowing is continuously evolving, and the outcome of such cases often hinges on individual interpretations. The recent ruling by Judge Okello underscores the importance of acknowledging the practical aspects of lending and borrowing within personal networks, while also upholding the principles of mutual consent and freedom of contract.
