Government borrowing denying public access to cheap loans - official
Dr Samuel Sejjaaka, the Uganda Development Bank chairperson.
What you need to know:
Reason. Banks lend to government because repayment is guaranteed.
Kampala. Continuous domestic borrowing by government from commercial banks is making it hard for individuals to access cheap loans, Uganda Development Bank (UDB) chairperson has said.
Speaking at the annual Rural Finance and Gender Equality Conference in Kampala on Tuesday, Dr Samuel Sejjaaka said commercial banks prefer to lend to government that borrows much money and repayment is guaranteed compared to individuals particularly those in agriculture despite the sector employing majority Ugandans.
As a result, he said the banks are reluctant to come up with products to cater for those in agriculture yet the sector urgently needs financing.
High interest rates
Mr Sejjaaka added that the current bank rates do not favour the sector characterised by many uncertainties.
“I have been asking myself, how can someone borrow at 30 per cent (interest rate) and be able to pay back? If you borrow Shs100, it means you must generate Shs100, which economy works like that?” Dr Sejjaaka wondered.
He added: “I think banks have been given a soft landing because government borrows from there.”
Government borrows from commercial banks by issuing treasury bills and bonds. Treasury bonds are debt instruments issued by the government to raise money locally.
The regional conference was organised by We Effect, a former Swedish Cooperative Centre in collaboration with other organisations under the theme: Inclusive Finance Opportunities for Youth and Women in Agribusiness for poverty reduction in East Africa.
Lack of sensitisation
Ms Regina Bafaki, the executive director of Action for Development (ACFODE) faulted government for giving out soft loans through projects like Capital Venture Fund, among others, without first educating the recipients on how to use the money.
“Most of the youth and women who get this money think it is a donation. They spend it and do not know that they have to repay it,” she said.
Ms Bafaki said they will use the conference to brainstorm on ideas and table them to government on how best the vulnerable groups who are the majority farm producers can access capital.
Increase in budget
In the financial year 2014/15, government borrowed Shs1.7trillion up from Shs1.02 trillion which was budgeted for at the budget inception. The increase was said to be due to many factors including the war in South Sudan where Ugandan forces are deployed.
