“Good” Micro-credit Loans for Our Ugandan Women Beaders
A key component of Outreach Uganda’s empowerment efforts centers on providing comprehensive management, leadership and business training to our groups so they become capable to manage their own business affairs including the operation of their own micro-credit loan funds. This internal revolving loan fund serves as the group’s own micro-credit lending arm which makes micro-credit loans for business needs of the Ugandan women in the group. Such small scale businesses are critical to the group’s income-generation efforts.
Out of all of Outreach Uganda’s activities to help our beaders, this is the most exciting item to our beaders. 34% per annum is the current lending rate to poor people by standard micro-credit lenders in Jinja Uganda. Our Jinja women’s group had been a member of a standard micro-credit lending agency for over 15 years with never a default. But because its members are poor with no collateral, the standard lending rate for them (as with all other poor people) was still the same 34% as any new group getting their first loan. If they had collateral such as land or a car (what poor person has this?), they could receive a 24% rate loan.
Avoiding Usurious Standard Micro-credit Loan Rates in Developing Countries
Even Muhammad Yunus, the initiator of the micro-credit concept, states in his book, Creating a World Without Poverty (ch. 3), that he thinks anything 30% and above is usurious, and that typical micro-credit loan rates for poverty-focused micro-credit programs should be in the 10 to 15% range.
One study of the Jinja poor population found that one reason many cited for being poor was the high 34 to 36% interest rates charged by standard micro-credit lenders. Indeed, when we first began working with our Jinja group members in 2007, many of them had been receiving standard micro-credit loans for over 10 years, and they were still as poor as the day they started their loans, still living on less than $1 per day. If 34% is not a good rate in the U.S., it is also not a good rate in Africa.
No wonder our group members are so excited that they can be their own lender and still have a sustainable fund while charging their members a 21% rate. This covers their costs of operating the fund, plus provides for an inflation factor of 10% per year. And as Christine Latigo, the group’s treasurer points out, “We also get to keep the interest to benefit our group.” Ten percent of the 21% rate is meant to cover inflation so the loan fund does not lose its value over time.
Standard micro-credit lenders charging the high interest rates claim that the small loan amounts coupled with high turnover, and the need for extensive training justify the higher rates. Looking at the experience of our Jinja group, the reality is there was very little business training given especially after the first couple of years, and what training was given was often focused on the mechanics of how the lender wanted to be repaid.
How Does our Uganda Micro-credit Loan Program Work, Where Women Enjoy a Good Interest Rate and Can Successfully Grow Their Business?
Our largest beader group’s (Jinja’s) fund was established in March 2008 and has been building steadily since that time, funded in some years with group bead selling monies, and from other donors who saw the capabilities of these enterprising women and their demonstrated record of handling their loan funds responsibly. In mid- 2011, the group discontinued its use of outside micro-credit loans and is now relying entirely on its internal revolving loan fund.
The beader group’s internal business committee and loan committee handle all aspects of making and collecting the micro-loans, training members, and monitoring the status of the members’ individual businesses that are receiving the loans. Money is not handed out freely. Members must demonstrate a business need, good character, and the ability to repay among other things. Only after completing the necessary paperwork and meeting stringent requirements, does the group’s loan committee approve business loan requests by its members.
Through its volunteers, Outreach Uganda assists in providing ongoing business training relative to the women’s businesses, and technical assistance as requested by them relative to their micro-credit loan fund’s operation.
Once the internal revolving loan fund is fully funded, the group hopes to add a supplemental fund to provide medium term home-related loans for home loans to qualified group members which will allow them build their own homes and move out of the slums forever.
Smaller Micro-credit Loan Funds in our Northern Uganda Women’s Groups
During 2011 and 2012, both our Kitgum women’s group and our Agwata cluster work groups started their own internal revolving loan funds. After several years of increasing these revolving loan funds with their own internally generated monies, several of these women’s groups have demonstrated they have the capacity and record keeping ability to successfully manage, grow and lend these monies. We hope to find donors (corporate, other nonprofits or individuals) who are interested in helping them expand these funds to a higher level.
Donate now to help expand the revolving loan funds of all three of our beader groups or to build seed money for the Jinja group’s home loan program.
Please email us if you would like to receive more information on how you can help with the groups’ micro-loan programs.