Our African Micro Loan Programs are Making a Difference
Outreach Uganda is excited to be one of a small number of African nonprofits which helps Ugandan women’s groups start their own internal African micro loan programs so that the groups can make business loans to members. The biggest benefit of these African micro loan programs offered by some African nonprofits, such as us, is that the loans carry a much more reasonable rate of interest than other standard microcredit programs offered by banks and other local financial institutions. In our initial Uganda women’s beader group which has the most experienced business women in it, the group has had the internal African micro loan programs since 2008. Learn more about their income-generation efforts.
Why Don’t Other African Nonprofits Offer African Micro Loan Programs?
It’s an intriguing question because we often wonder why existing standard bank microcredit schemes are so readily praised when the going interest rates offered are often at 36% per year or much higher. If such a rate is not considered good in the United States and the western world, why is it considered acceptable or even normal for Africa? We have all heard the standard reasons given of: 1. the loans are so many and so small that it takes higher overhead to keep track of them and collect, 2. that these institutions provide weekly training to their borrowers and 3. high inflation and so on. But the reality is, after an initial microcredit group is formed and trained, these institutions provide very little ongoing training. Their “training” if any, focuses more on the mechanics of what members need to do to comply with the payback requirements. Uganda’s average annual inflation rate since 1998 has been just over 7%. When combined with the fact that most loans made are for very short periods of one to three months, inflation should not normally be a major factor.
Each year our Jinja women’s group loan funds have grown because much of the interest has been reinvested into the fund to help offset the effects of inflation. The women themselves were the ones that voted as to what rate of interest they wanted to charge members. It was higher than we advised, but in their minds made sense because as one member astutely observed, “We [the group} get to keep the interest! They were thrilled about that. They voted on a 24% annual interest rate with higher penalty rates if members did not repay the loans on time.
Key Features of our African Micro Loan Programs
As we have developed the internal loan fund programs since 2008, their key features are that the women are trained to administer the program themselves, and learn how to keep the proper records. In addition, we provide extensive business training for the women teaching them how to become better business owners and more skilled entrepreneurs. A key to maintaining the success of the fund on an ongoing basis is discipline. The women must be disciplined in administering the fund, and also in running their businesses which are the beneficiaries of the business loans. There must also be strict adherence to the rule that all loans received are used for business purposes only. The women are taught on how to deal with friends, family members and others who may want to siphon off the loan funds for their own selfish purposes. Read more about one of our women entrepreneurs who received a loan for her business through the internal revolving loan fund.