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Delicensed Lender Continues Taking Deposits Amid Fraud Allegations

Kwagala, one of the complainants says the company paid the promised 5 per cent interest on the fixed deposit account for the first few months before cutting it by half. She has since failed to even withdraw the principal amount, which brings the total to about 190 million Shillings.
22 Oct 2020 07:00

Audio 5

Debora Rose Kwagala was living a simple, easy life in her humble setting in a Kampala Suburb in 2015, when she had landed a once in a lifetime chance to improve her wellbeing, through a company trading as RICA Microfinance.   

She was excited when she was told that if she gave them some regular deposits, she would get a five per cent interest per month, an opportunity she promptly took. As she continued making deposits, she also interested her sister who is based in the United Kingdom, to also ‘invest in the Rica business.  

According to records at the Uganda Registration Services Bureau-URSB, Rica Ltd, a private company limited by shares was registered in 2011, with objectives of carrying out various activities including lending. Upon registration, they started advertising their business offering people a chance to save or deposit with them and get high returns.  

With a strong membership status in a major Pentecostal Church in Kampala, the Chief Executive Officer, Nangobi Cathy Mbabazi and husband Richard Mbabazi were able to convince hundreds of faithful in and outside the Church. Today, she prides in having helped more than 1,600 people through a micro credit program giving out loans and training thousands of small scale entrepreneurs, disadvantaged families, and even churches in Uganda. 

On their website, the company says RICA is committed to building a business model that follows industry best practices. The company encourages ‘members’ to save in two types of accounts, a savings account that requires 20,000 Shillings to open and a fixed deposit account that needs an opening balance of 300,000 Shillings. Both accounts attract interest rates higher than the average market rates.   

It is the savings or deposits made by members, that RICA operators use to lend out to willing borrowers. This would ordinarily put RICA under the regulation of the Bank of Uganda, as per the Microfinance Deposit Taking Institutions Act, 2003, which states that ‘No microfinance business shall be conducted in Uganda except by a company which has a license granted by the Central Bank of Uganda.   

Despite being registered by the URSB in 2011, RICA Ltd first applied for a license under the Tier 4 Microfinance Institutions and Money Lenders Act of 2016, in 2018. This is the law that regulates companies that are engaged in lending of money, but not to take public deposits.   

The license was granted to Rica Financial Solutions and Business Consultancy, according to Uganda Microfinance Regulatory Authority, UMRA, which regulates Tier 4 microfinance institutions. While URSB registered Rica Ltd, the company’s directors operate under various names including Rica Microfinance Ltd, Rica Financial Services Uganda, RICA Financial Solutions and Business Consulting.     

When this license expired, it was not renewed because UMRA felt that the company had not fulfilled the requirements or terms of the license.   A visit to the company’s offices at Equatorial Mall along William Street showed that it is still conducting business as usual. 

An official who talked to us said that they continue taking deposits and it is from these deposits that they are able to lend. She added that they pay interest as well as allow withdrawal as per agreed terms. She, however, says that their rate of lending has reduced recently because of the economic situation and that they are concentrating on lending to groups, as opposed to individuals.   

//Cue in; We have a saving...

Cue out…something to eat.”//     

UMRA Executive Director, Edith Tusuubira says that even before RICA received their non-deposit taking institutions license, they were already taking deposits, which was wrong, according to her. 

//Cue in; We have so…

Cue out….. and it’s not allowed.”//          

Kwagala, one of the complainants says the company paid the promised 5 per cent interest on the fixed deposit account for the first few months before cutting it by half. She has since failed to even withdraw the principal amount, which brings the total to about 190 million Shillings.   

Court action against RICA saw the court grant her 103 million Shillings, but the company is yet to give it to her. Unfortunately for her, her UK-Based sister, whom she had intended to help by convincing her to also ‘invest’ in RICA, has so far forced Kwagala to even sale her house and relocate to a village in 

//Cue in; yangamba nti fixed deposit...

Cue out… sente za sister wange.”//   

Her colleague, Joyce Nyinamahoro was a little luckier as she stopped on the second deposit when she sensed something fishy with the directors. She says after failing to get her interest in the initial days of her membership, she demanded to withdraw the principal sum, which she is yet to get.   

She says UMRA also has a limitation as to how far it can help them because the company is not licensed, but they have been using mediation and threats of action as the main tool to get RICA to pay.   

//Cue in; I gave her first...

Cue out…million from her.”//    

RICA is also accused of bribing the lawyers representing the victims when they realised that the case is not going in the company’s favour. The UMRA Chief says they have not given up on following up with the cases, and that if there are any victims not yet paid, they will continue helping them as they also plan enforcement against the microfinance illegal activities.   

Asked why UMRA cannot stop RICA from operating, Ms Tusuubira says it becomes hard to carry out certain actions when a company is not licensed by them and under the Act.   

//Cue in; “We are not ...   

Cue out... regulating and supervising.”//