NSSF money can help reduce cost of borrowing

The National Social Security Fund (NSSF) was established in 1985 by an Act of Parliament to cater for the retirement needs of workers in the private sector. The fund totals $3b (Shs10 trillion) in assets. Workers contribute during their working life and receive the benefits on retirement.

Uganda continues to experience high levels of poverty among workers and those in retirement. With a saving fund of Shs10 trillion, workers would not be starving. One factor that has led to the grinding poverty in Uganda is the high cost of credit facilities. There is a cartoon that illustrates the dilemma of Uganda’s middle class. It shows a worker lamenting about the ever increasing fuel, food, rent, transport, but the salary remains constant.

My late father started working in 1973 during Idi Amin’s regime. His appointment letter included his salary calculated depending on the cost of living of the time. It included the percentage annual salary increase to cater for inflation. Today, health workers, teachers and others have to organise industrial action in order to demand a pay raise. My father never borrowed money to pay our school fees and other bills. Government had houses for civil servants, public transport was affordable and hospital visits were free. Not so today!

For today’s worker in Uganda to make ends meet, he must have a part-time job, secure a salary loan, take a bribe, and engage in corruption while others engage in betting. Today, nearly every worker has a salary loan to pay bills like rent, school fees, medical bills, Christmas, build a house, etc. The mushrooming unregulated money lenders, many of whom are actually big shots in government, have added more salt to the already sour wounds. Their interest rate is as high as 60 per cent per week, which makes it nearly a miracle for a debtor to pay back the ‘soft loans’. No wonder these loans agreement read ‘I have sold my property’.
They have no clause of renegotiation of loan repayment. If one fails to pay in time, his property is taken. Sometimes it’s not failure to pay, the moneylender disappears when the loan is due. The debtor’s security is taken because of not paying on the agreed date. Workers have lost homes, cars and other property in these dubious schemes.

Uganda has the highest interest rates in the region (July 2018) 19.17 per cent, Rwanda 16.8 per cent (August), Kenya 13.34 per cent (May 2018), Tanzania 17.34 per cent (June 2018) - (source, BoU). This makes credit access almost impossible. Commercial banks lend at 24 per cent and above. This makes it suicidal for low income earners. By comparison, China, Japan and Europe, grant their citizens loans with interest rates as low as 4 per cent per annum. Ugandan’s workers can’t compete with the Chinese whose interest is 4 per cent and Ugandans pay 24 per cent.
Ugandan Parliament passed a law allowing MPs with financial difficulty to borrow up to 50 per cent of their savings from the Parliamentary Pension Scheme at 12 per cent interest rate.

Hear this: When they pay back, the interest is also added on their savings. Parliament Pension Scheme lends money to commercial banks at 8 per cent interest rate and these banks lend that money at 20 per cent. This innovation was meant to save MPs from picking high interest rate on commercial loans from commercial banks and money lenders.
NSSF saves money for the workers, which is 5 per cent deduction from the employee and 10 per cent added by the employer. The law says one can only access his saving at 55 years of age. Before that, if a worker has a financial problem, he must look elsewhere for rescue.

Parliament should reform the law governing NSSF to allow workers borrow up to a given percentage of their saving, be charged an affordable interest rate of say 10 per cent and on paying back this loan, the principal and the interest rate should be added on the worker’s personal saving. This will help workers access affordable credit facility and reduce competition for bank loans hence causing a reduction of interest rate for those borrowing for investment purposes.

One of the major factors that led to the “US economic meltdown’’ in 2008, was the busting of the housing bubble. Banks encouraged workers to pick high interest rate mortgages. Many workers failed to pay these mortgages. Banks could not give money to their customers when they came to pick their money. Banks confiscated the houses but could not get back the money to pay their customers. The financial sector collapsed.
When a worker is fired, these commercial banks come for their homes and other properties. By the time they retire to access the NSSF saving, this money is a little too late to fix the damage that could have been caused such as where the workers’ children had dropped out of school years ago.

Mr Kaija is the FDC deputy secretary general. [email protected]