Microfinance Support Centre (MSC) has told Parliament that it will need an extra Shs313b as a recovery fund to help the revival of 1,749 Savings and Credits Cooperative Societies (Saccos) and 14,842 Village Savings and Lending Associations (VSLA) which have been hard hit by the Covid-19 pandemic.
Appearing before the Committee on National Economy on Friday, Mr John Peter Mujuni, the MSC executive director, said that money is needed as a stimulus package for the Saccos and VSLAs in the 2020/21 Financial Year.
He said most of the savers were severely affected by the lockdown as many of their small scale businesses were closed, forcing them to withdraw their savings from Saccos and VSLAs for survival.
“The fund will provide liquidity support to Saccos with a view to provide affordable microloans to MSMEs(Micro, Small, Medium, Enterprises) and low-income households as well as to meet client demand for loan refinancing,” Mr Mujuni said.
He argued that the most critical aspect of the economy is the informal sector, which employs about 80 per cent of Ugandans. Bringing it back to life with urgency, he said, will help the economy to quickly get back to its feet.
He said part of the fund, if availed to MSC, will be used to provide operational grants to extend technical assistance to the Saccos on post Covid-19 management.
According to the proposal, Shs87.4b will be injected in Saccos with a membership of 1.7m people, Shs222.6b to the VSLAs benefiting 427,420 people, Shs1.7b to be disbursed in form of stabilisation grants and Shs2b for administration.
Mr Mujuni told the committee chaired by Nakaseke North MP Syda Bbumba that the restrictions imposed by the government to prevent the spread of Covid-19 have affected the microfinance sector, where most of the players have been earning daily income which was curtailed by the lockdown.
“Over 92 per cent of the small traders, especially market vendors dealing in perishable commodities completely lost their capital while an estimated 80 per cent of the small enterprises funded by the company have experienced a sharp decline in demand for their products, most of which are going to waste” Mr Mujuni said.
With most of the people failing to earn their daily income for the last three months, the savings in the Saccos declined by more than 80 per cent and the repayment of loans to MSC have also declined by 90 per cent.
This has affected more than two million vendors who were pushed off work when the lockdown went biting.
Others affected, according to the MSC, are boda boda riders who only survive on deliveries other than carrying passengers, saloon operators, hawkers, and casual labourers.
As a remedy to the people chocking on loans due to Covid-19 effects, the MSC has embarked on the assessment of requests for the restructuring of loans on a case by case basis to be able to ease the pressure on the businesses that need to survive.
Mr Andrew James Nyakoojo, the director of supervision, Uganda Microfinance Regulatory Authority (UMRA), told the MPs that the much as the borrowers are seeking assistance to get relief from demands by the lenders, the latter are also going to face external pressures.
“The borrowers’ inability to repay loans immediately will put pressure on lenders’ ability to repay their own investors and funders and to fund their on-going operations.” Mr Nyakoojo said.
He said the survivals of the financial institutions that have been lending out money are likely to face liquidity crunch due to the inability by the borrowers to pay back.
UMRA officials called for the operationalisation of the Saccos Savings Protection Fund provided for in the Tier 4 Microfinance Institutions and Money Lenders Act, 2016.
They said this fund if created would help the Saccos which are likely to become insolvent if not assisted.
Ms Bbumba told the MSC to reach out to all corners of the country to render support to the rural people.
“We want you to go down because in the current circumstances, you cannot expect the rural people to walk to your offices in Kololo,” she said.
The MPs also proposed that UMRA be made a vote on its own so that it is not affected by lack of funding by the government since there will be annual appropriations by Parliament.
According to the proposal, Shs87.4b will be injected in Saccos with a membership of 1.7m people, Shs222.6b to the VSLAs benefiting 427,420 people.