Uganda’s Insurance Regulatory Authority and the central bank have differed over premiums that borrowers pay to cover loan charges for life insurance — known as credit life insurance.

While the IRA says that both the borrower and lender should pay their own premiums, the Bank of Uganda argues that it is a free market where commercial banks can impose levies provided they do not break any law.

The public, on the other hand, view the charges as a rip-off by commercial banks.

“We are concerned that there are many charges, but we do not control what commercial banks charge as long as they do not break any other law. But we want banks to disclose the charges to customers before they offer any loan documents for signing,” said BoU deputy director of financial stability, Yiga Masajja.

Numerous charges

For example, a borrower applying for $5,000 receives $4,568 after meeting insurance charges at 2 per cent, stamp duty at 1.5 per cent, evaluation fee at 3 per cent, loan monitoring at $2 per month for 48 months paid up front, and a loan application fee of $11.

This amount excludes mortgage evaluation, which is also charged on the loan amount, though the interest is charged on original amount. Besides that, banks also ask for insured collateral.

Credit life insurance is a policy which the lender is indemnified if the borrower dies before repaying the loan in full.

Although BoU said the arrangement suits the unsecured loans, in some cases, banks still take ownership of the property of a borrower even when they have credit life insurance.

“Depending on the terms of the insurance cover, the bank may have the right to take ownership of a borrower’s property to clear the outstanding amount,” said IRA spokesperson Faith Ekudu.

The insurance regulator hopes to address the problem in the laws on bancassurance.


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