REGULATING SALARY LOANS TO STAFF
The Government policy permits deductions from the payroll including statutory deductions not to exceed 50% of gross basic pay.
It has however, been observed that some staffs:-
i) Contract multiple salary loans from various banks leading to deductions exceeding 50% and the names are automatically dropped-off the payroll.
ii) In addition to contracting salary loans from banks, some staffs contract more salary loan from Micro finance Financial Institutions, which grossly affect their net take home emolument and welfare.
iii) Micro Financial Instructions are granting long term salary loans up to a period of 5-years (60 months) without considering implications on the affected staff welfare.
iv) The Microfinance Financial Institution interest rates are on average 4% per month (48% per annum) which is quite high compared to the bank lending rates.
v) A number of attritions due to desertion have loan obligations and in some cases leave the burden behind to fellow staff who stand-in for them as guarantors to the bank loans.
In view of these observations, it remains the obligation of the employer to guide staff and internally regulate salary loan management on the payroll in order to mitigate noncompliance, safeguard welfare and productivity of the staff.
With immediate effect therefore, the following control measures have been put in place to improve salary loan management on the payroll particularly for Junior Staff on salary scales U8-U6:-
1) Salary loans should in principle serve emergency relief purposes such as school fees, medical attention, etc. and such loans should be on short-term basis. In case of development like home improvement or land acquisition, the repayment period should be limited to medium-term.
2) Administrative guidance is given below:
Loan amount Re-payment period
Shs. 100,000 – 1,000,000 One (1) to 12 months
Up to Shs. 1,500,000 Not exceeding 18 months
Up to Shs. 2,500,000 Not exceeding 24 months
Up to Shs. 3,000,000 Not exceeding 30 months
Up to Shs. 3,500,000 Not exceeding 36 months
The purpose of this letter is therefore to:-
a) Request you circulate this guidance to all staff under your jurisdiction and sensitize them accordingly.
b) Instruct you not to recommend salary loans application outside above the range for staff in salary scales U8-U6.
c) Share the information with the Banks and Micro finance Institutions offering salary loans to Uganda Prisons Service.
Internal guidance to staff on salary loan and interest rate scenarios is provided on attached annex 1.
For: COMMISSIONER GENERAL OF PRISONS