John Musinguzi is a micro moneylender in Mukono Town. He has a stack of 150 National ID cards in his locker, belonging to people who owe him money.
Because his clients hardly have any collateral to secure the loans, he settles for the National ID card, which is treasured by citizens. The amounts he lends out are not very big. Currently, he says, the loans he has given out range between Shs50,000 and Shs850,000. He says the biggest loan he has ever given out during the three years he has been in business is Shs1.5m.
The person who borrowed the Shs850,000, Musinguzi says, is a fish dealer who took the money in early March and had to repay it with interest in instalments of Shs100,000 per week for 12 weeks.
Musinguzi says his client had repaid instalments for the first three weeks when the lockdown started biting, and the repayments from the client have since been irregular, and much smaller, sometimes Shs30,000 instead of Shs100,000 a week, sometimes nothing.
In total, the client has repaid so far Shs445,000 out of the Shs1.2m he had to pay back. The 12 weeks within which the borrower had to clear the debt with interest elapse this month and Musinguzi says the client will in the end have to pay him a bit more interest because he has delayed to repay the loan. He says his other clients are not doing any better.
During the lockdown period, which is deep into its second month, Musinguzi no longer gives out loans. His capital base is badly depleted, he says, and that he is also fearful that the money he lends out during this time may not be repaid because most businesses are slow.
Musinguzi and his clients are eating into their little capital, and it is not different for many other petty operators.
Reviving the economy
But in the discussion about resuscitating the economy, the provision of cheap credit to the working poor has hardly featured. The conversation for the government to come up with a ‘stimulus package’ has been dominated by big business players under the Private Sector Foundation Uganda (PSFU), which has held several meetings with the government through the Ministry of Finance.
Commenting on the progress of the talks, Finance Minister Matia Kasaija said this week: “We want to help our business community, and they have already asked us for it, with reliefs of tax and other monthly expenses that they normally incur.”
This was a week after Prof Elly Karuhanga, the PSFU chairperson, said in a press release that they had presented a number of proposals to the government during ‘numerous meetings’.
The measures, Prof Karuhanga said, include the government paying domestic arrears to suppliers; deferring payroll taxes and paying outstanding VAT refunds, among other tax proposals; restructure and further capitalise Uganda Development Bank (UDB) to “aggressively” support production; and improve the administration of the Agriculture Credit Fund.
There are other measures that PSFU has floated, including efforts to expand export capacity and enhance the Buy Uganda Build Uganda (BUBU) initiative, and to support the resuscitation of businesses in the tourism sector.
Scanning through the proposals Prof Karuhanga presented, however, it is difficult to see where the working poor fall. Yet small scale poultry farmers, market vendors, boda boda riders and other petty operators make up a very big portion of the Ugandan economy and have been hard hit.
During an e-conference sponsored by PSFU, which was broadcast on NBS Television early this week, the issues of how the government may help out the business community were distilled. Most speakers predictably dwelled on the formal sector.
But one participant made an observation to underscore the importance of targeting what he called the “bottom of the pyramid”, who are now in dire need of help to get back on their feet. This was Patrick Mweheire, the former managing director of Stanbic Bank Uganda, who is now the regional chief executive officer of Stanbic Bank in the East African region.
The point was further underscored by John Peter Mujuni, the executive director of the Microfinance Support Centre (MSC), who made a brief appearance on the televised conference on day-two. He stressed the need to support the rural sector and informal players, who would otherwise not get financing from formal institutions such as those Prof Karuhanga was fronting.
Mujuni said: “The informal sector players will need affordable credit at rates as low as eight per cent in order to re-establish their small businesses. The most vulnerable businesses such as those of the elderly and disabled will even need grants. Fortunately, government owns institutions with the mandate to offer such capital, especially MSC, which channels funding to Saccos and village savings schemes.”
But the proposals to resuscitate the economy only talk about capitalising UDB, which services big industrialists and businesses and is out of reach for those at the bottom of the pyramid that Mr Mweheire talked about.
As the government mulls a stimulus package, it is important to think about the entire pyramid, not just the top as it appears to be at the moment. As UDB receives funding to service industrialists, let resources be availed to the informal sectors and small enterprises through other institutions that support the bottom of the pyramid.
There is a strong case for availing money to low income earners by capitalising institutions that serve them like MSC. This will protect them from private micro lenders who often charge exorbitant interest rates, often above 35 per cent per month, and the repayment period is often too short, with borrowers required to pay up within a matter of weeks.
This financing model at the bottom of the pyramid curtails savings mobilisation by the poorest Ugandans, since they spend a lot of what they make out of borrowed money in servicing debt.
Let the capitalisation of institutions, as well as the cost of money and its delivery, be informed by the need to cater for the poor producers, especially the poor farmers, who continue to feed this country even during the lockdown.