Uganda’s Court of Appeal has passed a landmark decision that could curtail commercial banks’ notorious practice of hawking ‘salaried loans” for white and blue-collar workers.

In their majority decision ,the  Court of Appeal has upheld a judgement that was handed out by the Industrial Court to the effect that an employee whose loan is guaranteed by the employer to be recovered from their salary but is wrongfully dismissed from their job cannot be held liable to pay the said loan.

This decision follows numerous reforms that have been instituted by the Judiciary to protect loan defaulters from being sent to the civil prison because of their failure to pay loans including those from the hitherto brutal downtown shylock -money lenders.

The Money lenders Act has since been amended requiring all money lenders to be registered and have an annual practicing certificate before they can be heard in court.  Similarly , a High court Execution Division was establish to deal with matters of executing decisions, orders and reliefs granted by the Courts of Judicature.

The Court of Appeal upheld an earlier ruling by the Industrial Court in the case of Florence Mufumba vs Uganda Development Bank that one is entitled to relief of the loan that was supposed to be recovered from their salary up to the time of their retirement.

Mufumba petitioned the Industrial Court over wrongful dismissal from Uganda Development Bank in 2011 where she was working as the Principal Internal Auditor. Her case was to the effect that she was dismissed while on leave and was not given any sound  reasons why her job was unfairly terminated . The judges of the industrial court agreed with her submissions that she was dismissed wrongfully.

But among the issues raised before court included the two loans that she obtained from the bank while in employment .  she obtained a housing loan of 102 million Shillings which was  to be recovered in 15 years.

“In respect to this loan therefore, she would only be entitled to relief from the respondent (UDB) for only the value of deductions from her salary up to the time she would have officially retired,” ruled Justice Asaph Ruhinda and Linda Tumusiime in 2014.

Additionally Mufumba also got a 25-million Shillings car loan but this would be recovered in its entirety before retirement. The Justices of the CA stated  thus; “Should any of the loans have been intended to be wholly covered by the salary and any other emoluments of the claimant, then, she would be entitled to relief in the whole sum of the loan.”

In the appeal by Uganda Development Bank , Justices Kenneth Kakuru together  with Geoffrey Kiryabwire and Christopher Madrama -some  of the most grounded commercial judges in Uganda ,upheld the industrial court ruling stating that Mufumba is not liable to pay the loan where it’s repayment depended on her being employed at UDB.

The court also granted Mufumba severance allowance amounting to 83 million Shillings, general damages totaling 150 million Shillings and aggravated damages calculated at 200 million Shillings.

Legal experts have stated that the decision has in effect put banks and employers on notice to be careful when offering loans based on people’s employment and salaries guaranteed by their employers .

Salaried loans are insured but only for death and banks can not make money when the loan facility is insured for all incidentals because it could make it very expensive for the borrowers since all such costs are calculated within the loan portfolio .


Writer is a media and communications consultant And Advocate of the High Court of Uganda

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