October 7, 2025
Every business that extends credit—whether it’s a bank, microfinance institution, SACCO, or small enterprise—eventually faces the challenge of non-performing loans (NPLs). In Uganda, where access to credit is a lifeline for SMEs, farmers, and individuals, loan defaults can quickly erode trust between lenders and borrowers.
But here’s the dilemma: while businesses need to recover their money to survive, they also need to maintain healthy client relationships. A client who defaults today may still be a valuable long-term partner tomorrow. Handling non-performing loans with empathy and professionalism ensures businesses recover funds without destroying trust, reputation, or future opportunities.
This in-depth guide explores how to manage non-performing loans in Uganda effectively, ethically, and sustainably. From early identification and communication strategies to restructuring, financial literacy, and professional collection support, we’ll walk through the strategies that keep businesses profitable while protecting client relationships.
Understanding Non-Performing Loans in Uganda
What Are Non-Performing Loans?
A loan is classified as non-performing when the borrower has not made scheduled payments—either interest, principal, or both—for 90 days or more. At this point, repayment becomes uncertain, and businesses must intervene.
Causes of Non-Performing Loans in Uganda
Ugandan businesses face unique challenges that contribute to loan defaults, including:
- Economic Instability: Inflation, fluctuating fuel prices, and high interest rates affect repayment.
- Poor Financial Management: Many SMEs lack bookkeeping systems, making it difficult to plan repayments.
- Agricultural Risks: Farmers depending on seasonal yields often default when crops fail.
- Job Losses & Emergencies: Borrowers may lose their income source or face medical emergencies.
- Over-Indebtedness: Multiple loans from different lenders can overwhelm borrowers.
Impact of NPLs on Businesses
The ripple effects of NPLs are serious:
- Reduced liquidity and working capital
- Lower profitability and cash flow instability
- Strained relationships with clients and suppliers
- Increased costs of debt collection
- Higher risk perception by investors and banks
This is why proactive NPL management is essential—not just for financial stability but also for long-term customer trust.
Why Customer Relationships Must Be Protected
At first glance, debt recovery may seem purely financial. But in reality, it’s about relationships and trust. Here’s why:
- Repeat Business Matters
Ugandan SMEs thrive on recurring customers. Losing a client over aggressive debt collection can cost more than the debt itself. - Reputation and Word of Mouth
In tightly knit communities, word spreads fast. A reputation for harsh treatment can deter future customers. - Regulatory and Ethical Concerns
Uganda’s financial regulations discourage harassment or illegal recovery methods. Ethical practices protect businesses from lawsuits and penalties. - Sustainable Growth
Balancing repayment with empathy ensures long-term partnerships, strengthening business sustainability.
In short, the art of debt recovery lies in protecting financial health while nurturing client loyalty.
Strategies to Handle Non-Performing Loans Without Damaging Relationships
1. Early Identification of Risky Accounts
The sooner businesses act, the higher the chances of recovery. Tools and tactics include:
- Monitoring repayment history regularly.
- Flagging accounts that miss one or two payments.
- Using technology (loan management systems, CRMs) to track risk indicators.
Early identification prevents a loan from snowballing into long-term default.
2. Professional and Respectful Communication
How you approach a client makes all the difference. Instead of sending aggressive threats, businesses should:
- Send polite SMS reminders after missed payments.
- Follow up with a phone call to understand the situation.
- Write professional letters that invite dialogue rather than scare the borrower.
Clients are far more responsive to respectful communication than intimidation.
3. Empathy and Understanding the Borrower’s Situation
Every default has a story. By listening to clients—whether it’s illness, job loss, or delayed payments from their own customers—businesses can show empathy. This not only builds trust but also increases willingness to repay.
4. Loan Restructuring and Flexible Repayment Plans
Restructuring is a powerful tool to balance recovery with customer care. Options include:
- Extending repayment terms to reduce installment size.
- Interest rate reductions for struggling borrowers.
- Grace periods to give breathing space during tough times.
- Installment flexibility, allowing smaller, regular payments.
Example: A Kampala SME allowed a client to repay a UGX 10M loan in smaller weekly installments instead of monthly lumps. The client cleared the debt in full without stress.
5. Negotiating Win-Win Settlements
Instead of forcing a lump-sum payment, businesses can negotiate:
- Partial payments with waivers on penalties.
- Settlements where the client pays a portion upfront and the balance over time.
- Incentives like interest waivers for early repayment.
This way, the borrower feels supported, and the lender recovers funds faster.
6. Partnering with Professional Debt Collection Agencies
Outsourcing to experts like Boresha Credit Services is a game-changer. Unlike in-house teams that may lack training, professional collectors:
- Use ethical, non-harsh methods.
- Have negotiation expertise.
- Provide legal support where necessary.
- Use structured systems for debtor tracking and follow-up.
This balance of firmness and professionalism ensures higher recovery rates without ruining relationships.
7. Leveraging Technology for Debt Recovery
Technology is transforming NPL management in Uganda:
- Automated Reminders: SMS/email alerts for due dates.
- Mobile Payments: Integration with MTN Mobile Money and Airtel Money for convenient repayment.
- Digital Dashboards: Businesses track repayment progress in real time.
- Predictive Analytics: Identifying borrowers at risk before they default.
These tools not only improve recovery but also enhance customer convenience.
8. Legal Action as a Last Resort
Sometimes, despite all efforts, repayment fails. Legal action may be necessary, but businesses should:
- Exhaust all negotiation and restructuring first.
- Ensure legal action complies with Ugandan laws.
- Use court orders or debt recovery tribunals only when essential.
Remember: legal battles are costly, time-consuming, and often permanently damage relationships.
9. Educating Borrowers on Financial Literacy
Many defaults stem from poor financial planning. Lenders can prevent future NPLs by:
- Offering financial literacy workshops.
- Sharing tips on budgeting, savings, and debt management.
- Encouraging borrowers to avoid multiple loans.
Empowered clients are more likely to repay loans responsibly, reducing NPL risks in the long term.
Uganda’s Regulatory Framework for Loan Recovery
Uganda has set legal and regulatory standards to protect both borrowers and lenders:
- Bank of Uganda Guidelines: Require financial institutions to classify and report NPLs accurately.
- Financial Institutions Act 2004: Outlines recovery and compliance measures.
- Tier IV Microfinance Institutions Act: Regulates SACCOs and micro-lenders to prevent abusive practices.
- Data Protection & Privacy Act 2019: Governs how debtor information is managed.
Lenders must comply with these laws to ensure ethical recovery and avoid lawsuits.
Case Study: Ethical Recovery in Action
A Ugandan SACCO faced rising defaults among boda-boda loan clients. Instead of repossessing motorcycles immediately, they:
- Held community meetings to understand challenges.
- Offered repayment extensions aligned with income patterns.
- Partnered with Boresha Credit Services for structured follow-up.
The SACCO recovered 80% of the loans while retaining members, proving that relationship-first recovery works.
The Role of Boresha Credit Services
At Boresha Credit Services Uganda, we specialize in helping businesses recover debts without conflict. Our services include:
- Ethical negotiation and follow-up tailored to Ugandan clients.
- Technology-driven recovery systems for accurate tracking.
- Customized repayment plans that balance business needs with customer situations.
- Legal support when escalation is unavoidable.
Our mission is simple: help businesses recover money while keeping clients loyal.
FAQs About Handling Non-Performing Loans
Q1: What is the best way to deal with non-performing loans in Uganda?
The best way is early intervention—monitoring accounts, communicating respectfully, restructuring loans, and seeking professional help when necessary.
Q2: Does restructuring encourage more defaults?
Not if done carefully. Restructuring builds trust and improves recovery rates, but it must be paired with financial literacy and monitoring.
Q3: Can small businesses afford debt collection agencies?
Yes. Agencies like Boresha offer scalable solutions for SMEs, making them cost-effective for businesses of all sizes.
Q4: How does technology help in loan recovery?
Technology automates reminders, simplifies payments through mobile money, and provides real-time debtor tracking, making recovery faster and smoother.
Q5: Should legal action always be taken for unpaid loans?
No. Legal measures should only be a last resort after all negotiations, restructurings, and professional collection efforts have failed.
