Micro-Credit Loans

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 an internal revolving loan fund.  This internal revolving loan fund serves as the group’s own micro-credit lending arm which makes business loans to the group’s members.

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.  The Pittek 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.

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 rates for poverty-focused microcredit 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 Pittek 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.

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.”

Our largest beader group’s (Jinja’s) fund was established in March 2008 and has been building steadily since that time, funded during the last three years with group bead selling monies.  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.

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 members to purchase land on which they can build homes. 

During 2011 and 2012, both our Kitgum and Agwata groups started their own internal revolving loan funds.  These are still in the beginning training stages, but both groups are poised to substantially expand these loan funds in 2013.

Donate now to help expand the revolving loan funds of all three of our beader groups or to build seed money for the Jinja and Kitgum group’s home loan program.

Please leave a comment below if you would like to receive more information on how you can help with the groups’ micro-loan programs.