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A loan agreement whereby a creditor lends money to a debtor in return for a promise to return the money with interest will normally be enforceable at law. Such agreement to lend money may be orally and need not be in writing.

However, it is a criminal offence for a person who lends or offers to lend money to do so at a true annual percentage rate of interest in excess of 48% per year. No agreement for the repayment of such a loan and no security given in respect of such a loan is enforceable.

Further, where there is evidence that a loan transaction is or has been extortionate, the Court may reopen the transaction so as to do justice between the parties concerned.

(1) A loan is extortionate:-
(a) if it either requires the debtor or his relative to make payments (whether unconditionally or not) which are grossly exorbitant; or,
(b) if it otherwise grossly contravenes ordinary principles of fair-dealing.
(2) There is a statutory presumption that an agreement to lend money at a rate of interest which exceeds a true annual percentage rate of 36% per year is extortionate.

Any person who carries on a business of making loans or who holds himself out as carrying on such business must be licensed by the Government to operate as a money lender. He may only carry on his business at the premises and on the conditions specified in his licence, and in addition he must comply with the provisions of the Money Lenders Ordinance.

In general, it is illegal for a person who carries on business as a money lender to make an agreement which directly or indirectly:-

(1) provides for payment of compound interest;
(2) prohibits the repayment of a loan by instalments; or,
(3) provides for the rate or amount of interest being increased by reason of any default in the payment of the sums due under the agreement.

A money lending agreement which has been entered into in contravention of the Money Lenders Ordinance may be unenforceable as an illegal agreement.

Date of amendment: 11th October 2023