Private credit’s rising tide fails to lift women

Financial institutions are extending record credit to borrowers as the economy recovers, increasing the total stock of outstanding private sector credit by 1.6 percent to Shs21.4 trillion in November 2023 from the previous month. 

According to data from the National Treasury, more people are borrowing money from financial institutions to support business operations and pay off debt. This includes both foreign currency and shilling-dominated credit. 

Private credit stock, for instance, was only Shs21.1 trillion in October, but increased by Shs300 billion the following month, primarily due to the Uganda shillings denominated loans that grew at an annualised rate of Shs15 trillion that raced at two percent. But of late, borrowers have swarmed loans dominated by foreign currencies, with a 30 percent increase to Shs6.4 trillion. 

“The growth in the stock of private sector credit during the month was partly due to a moderation in lending rates especially on shilling denominated credit,” the Finance ministry noted in the December Performance of the Economy report. 

Commercial banks’ weighted average lending rates on credit denominated in shillings were 16.8 percent in November 2023, down from 18.9 percent in October 2023. 

This was partially due to lessening inflationary pressures, according to the National Treasury, and the fees associated with credit denominated in foreign currencies went up from 8.7 percent in October 2023 to 8.96 percent in November 2023, partially because of perceived foreign exchange risks. 

Bit part role
When businesses and individuals have access to credit, they can use it to invest in projects, expand operations, and make purchases. This increased spending can stimulate economic activity and contribute to overall economic growth. Yet female business owners claim that because they lack capital—such as land, which banks are more interested in—they are only receiving a small portion of this for their rejuvenating businesses. 

During a January 15 side event at the Non-Aligned Movement or NAM Summit organised under the auspices of the Agriculture ministry and UN Women, a number of female entrepreneurs said credit availability—or the lack of—is a drawback to their business.  

“If we can get financial institutions and interact with them so that women can easily get loans with good payment terms, most of us would be bailed out from this maze. We don’t have collateral yet we need to take risks to make investments to change the world,” said Hellen Munyasa, a Ugandan entrepreneur with a prototype that is aimed to change plastic bottle waste into sustainable sewing threads. 

“Much of the money coming to developing countries has been coming from the global north, yet there is a lot of opportunities from the global south [since the NAM and G77+China summits have a lot of global south states] as well where financing networks can be built not only to advance the objectives of the NAM but also to support women businesses move from on-farm activities to value-addition,” said Mr Kareem Buyana, an official responsible for partnerships and resource mobilisation under the UN Women. 

No respite?
It was observed that the majority of the women exhibiting their products lacked certification, citing the negative effects of digital taxes as a threat to their businesses’ survival and entry into offshore markets. Despite women expressing their discontent with these obstacles, the document from the tax authorities, outlining numerous tax breaks for various industries, offers little relief.

According to a review of the 48-page Uganda Revenue Authority tax incentive guide, businesses with a higher capitalisation rate or those dominated by male capabilities in strength and technicalities, are given preference. Several industries that fall under this category are insurance, pharmaceutical, energy, mining and petroleum, foreign transport, and investors who export at least 80 percent of their goods. 

Female entrepreneurs, in collaboration with the Gender and Agriculture ministries, are actively drafting a Cabinet paper.

This proposal aims to facilitate the government’s initiative to reduce taxes on agricultural equipment and packaging materials. The plan also involves enhancing the accessibility of machinery to more female entrepreneurs and implementing reservation programmes for women in public procurement.

Data from the National Treasury indicates that the amount of loans that lending institutions approve in the agricultural sector is minimal. 

“Personal and household loans continue to account for the largest portion of the total credit extended to the private sector, with 27.8 percent in November 2023, which is up from 21.6 percent in the previous month,” the December 2023 State of the Economy report shows, adding, “This was followed by trade which accounted for 22.8 percent, manufacturing that accounted for 12.6 percent, real estate that took 12.3 percent and agriculture that accounted for 11.5 percent.” 

Some of the Ugandan economists with a thorough understanding of the collateral argument state that the most important concern for women-owned businesses is their financial sustainability, as many lenders deem them unsuitable for loans. 

Economist says
Senior Economist Madina Guloba of the Economic Policy Research Centre argues that financial institutions favour large lenders in their business models to boost their own revenue; and yet, the majority of women-owned businesses are small, such as flower shops and jewellery shops, or have limited capacity to expand. 

“Some women entrepreneurs take these businesses as side hustles since they already have jobs and fail to take risks or make big investments in them. And those who are not educated lack financial planning skills, which creates a loop in this for women businesses,” she explained. 

Women in the business world will not receive preferential treatment, according to Dr Guloba, who encourages them to be open to financial literacy. 

“You have to fight to get there. Think like a woman, but with a strategy. You also need to be open to capacity building by learning how to operate machinery in agriculture … There will not be special machinery for women, at least for now,” she said.

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