Uganda is bracing itself for a spike in loan defaults in the final quarter of 2025, as political tensions ahead of the January 2026 general election fuel economic uncertainty and strain household and business finances.
A report by the Bank of Uganda (BoU) shows that enterprises and individuals are increasingly at an increased risk of failing to repay loans, due to reduced donor inflows, rising borrowing costs, and the fragile electoral climate.
BoU’s Bank Lending Survey Report for Quarter One of the current fiscal year (July-September) states that most banks expect to maintain their overall credit standards, with a bias towards tightening in the quarter ending in December 2025.
Credit standards are internal banking rules that determine the types of loans (collateralised, non-collateralised, investment or overdraft) and the amounts to be extended to specific clients, based on classifications such as sector, location, size, duration and financial indicators.
Banks anticipate an increase in loan defaults by enterprises, primarily driven by political uncertainty linked to the election period, ongoing disruptions caused by the freezing of USAid funding, significant reductions in NGO financial support and limited credit histories among clients using mobile lenders.
Households are likely to default due to higher funding costs following the cut in USAid and NGO inflows, which were previously a reliable source of low-cost funding. They are also likely to default due to the challenges of accessing credit on mobile lending platforms and the anticipated diversion of funds to festive season spending.“On a net basis, the default rate on loans to both enterprises and households is anticipated to increase in the quarter ending December 2025,” the bank states. “The anticipated tightening of terms and conditions for households is based on political tensions related to the upcoming elections, future uncertainties, and the risk of default on digital platforms lacking collateral requirements.”Most banks are expected to keep lending rates unchanged during this period, citing stable macroeconomic conditions, low inflation, projected economic growth, and a steady central bank rate.
However, lenders planning to increase rates point to the rising cost of funds due to the frozen US aid and prevailing political uncertainty.
President Yoweri Museveni, 80, is seeking a seventh consecutive term on the ruling National Resistance Movement (NRM) ticket.
Banks expecting credit standards to remain broadly unchanged cite stable, low inflation levels that encourage consumer spending and short-term borrowing, despite persistent global geopolitical tensions.
The anticipated tightening of credit standards is also attributed to delayed financing for contract-based jobs—especially in construction—and ongoing political uncertainty.
Conversely, banks anticipating an easing of credit standards cite the need to support increased demand for business stock during the festive season and growing operational funding needs for educational institutions at the start of the third term, which require short-term financing.
In the quarter ending December 2025, banks anticipate a sharp increase in overall credit demand. This is largely driven by the reopening of schools for the third term, the need for working capital to support post-festive business activities, heightened agricultural activity ahead of the harvest season—particularly for coffee—and increased infrastructure spending linked to ongoing oil and gas sector developments, including advanced pipeline construction.
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