Ugandans embracing affordable credit amid structural challenges

Monday February 15 2021
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Customers access financial services at a banking hall in Kampala on February 6 last year. Under the SIMPO Registry, people can access loans with movable assets, a shift from the traditional system. PHOTO/MICHAEL KAKUMIRIZI

By BAMUTURAKI MUSINGUZI

Although the business community in Uganda is embracing the Security Interest in Movable Property (SIMPO) Registry that is intended to drive financial inclusion through facilitating access to affordable credit, the limitations to credit, and the structural gaps in the generation, protection, commercialisation and enforcement of Intellectual Property (IP) are still hindering the growth of the financial and copyright industries.  

The enactment of the Security Interest in Movable Property Act of 2019 was spearheaded by the Uganda Registration Services Bureau (URSB). 

The purpose of the law is to encourage lending against movable property such as crops, bicycles, vehicles, IP assets, among others. The Act established the SIMPO Registry that was officially launched together with the National Intellectual Property (IP) Policy recently. 

Innovation
SIMPO replaced the manual Chattels Securities Registry whose attendant legal framework responds to the pressing needs of the youth, women and Small and Medium Enterprises (SMEs) who cannot access affordable credit due to lack of land, which is the preferred collateral for financial institutions. 

SIMPO will be guided by Vision 2040, and the Third National Development Plan (NPA) 2020-2025, among other development plans.  
Speaking at the official launch of the SIMPO Registry and IP Policy on September 23  last year, the former URSB Registrar General, Mr Bemanya Twebaze, said the Security Interest in Movable Property Act of 2019 provides for a register for movable assets used as collateral. 

“The existence of the Registry is expected to improve the access to affordable financing especially for the vulnerable groups (women and youth) and the SMEs who do not have land or the nature of security required by the traditional lenders.” 

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Mr Bemanya notes that the NDP II 2015/2016-2019/2020 identified limited access to credit as one of the major challenges to doing business in Uganda. “It is also public knowledge that lenders prefer the use of immovable property over movable property as collateral for money advanced/loans, mainly due to the risks associated with movable property.” 

“The purpose of the SIMPO Registry is to promote financial inclusion and increase access to credit for women, youth, and micro, small and medium businesses that do not have fixed assets such as land that is usually the required collateral by traditional lending institutions,” Mr Bemanya added.

Current bottlenecks
The NDP III 2020/21-2024/25 noted that the credit available to the private sector is characterised
 by high interest rates and high collateral requirements. 

“It is expected that SIMPO will further promote prudent lending practices due to inherent transparency built into the system. The outcome of this is that lenders’ risk will reduce and in the long term the interest rates will also fall,” Mr Bemanya said.  

The launch of SIMPO and the IP Policy is intended to: increase awareness about the two instruments; position the SIMPO Registry as an option for government to enhance household incomes through facilitating easy access to credit using movable property; and promote utilisation of the IP eco-system that supports creativity and innovation thus enhancing growth of the small-scale industries sector.

The objective of the IP Policy is to stimulate and nurture innovation and creativity for socioeconomic development. The policy will also facilitate the integration of IP into national priority sectors and programmes towards the realisation of national development goals.  

 According to Mr Bemanya, SIMPO has been successful since it was rolled out to the public in September 2019, more than 4,000 registrations have been made on the system and the most commonly used assets to secure loans are motor vehicles and motorcycles (boda bodas). These account for most of the property owned and pledged by borrowers including Micro, Small, and Medium Enterprises (MSMEs); the majority of loans (for which the securities are registered in SIMPO) were given to the transport, agriculture, wholesale and retail, among others. 

Mr Bemanya adds that 75 financial and non-financial institutions have signed up as users on SIMPO. 

These include commercial banks, microfinance institutions, licensed money lenders, and Saccos; there are 576 women out of the total 4,198 borrowers have been able to access credit through SIMPO; information on the Registry also shows that the credit needs of micro, small and medium enterprises are slowly beginning to be addressed by lenders. Eighty-six MSMEs out of the total 4,198 borrowers were able to access loans. 

“URSB with more than 4,000 registrations in the first year of SIMPO’s operations has immense potential to yield very positive results, and we are confident that it will achieve its intended impact of facilitating individual entrepreneurs and MSMEs to acquire affordable loans and other lines of credit,” Bemanya said.

“We further expect that with the launch of the IP Policy and the SIMPO Registry we will enhance our NTR (Non Tax Revenue) collections because of the increased consumption of the two services,”  Mr Bemanya added.

He is optimistic that this industry that is based on copyright is estimated to constitute between 4 per cent and 7 per cent of GDP with the potential to create job opportunities. 

Mr Emron Karugire, who runs Enamel Cleaning Services in Kampala, is one of beneficiaries of the SIMPO Registry. 

He staked his motor vehicle to borrow Shs10m from Letshego Microfinance Uganda in 2019 to re-capitalise his business based in Ntinda and Najjera.

Mr Karugire told Daily Monitor  that it was easy borrowing under the SIMPO registry arrangement. 

“It was easy. All that is required is to have a national identity card, collateral and an already existing business. The requirements are not stringent.”

Mr Karugire says the loan facility has improved his business and well-being. 

“I used the loan to purchase more stock for my business. My sales have increased and my livelihood has gotten better. I pay my bills on time.”

Mr Karugire, who has borrowed from traditional commercial banks before, says they have stringent requirements. 

“The requirements are so many and their turnaround time is bad. It can take more than a week to get a loan from a commercial banks,” he says.

When asked to compare the SIMPO arrangement to commercial banks, Mr Karugire, said: “The SIMPO arrangement is cheap and convenient for people who are taking small loans facilities.”

Asked how the business community has reacted to the SIMPO registry arrangement, the head of corporate communications of Letshego Microfinance Uganda, Mr Rogers Mugisha, said: “The arrangement has increased investor confidence. So the business community has welcomed and embraced it.”

As to if the benefits of the SIMPO arrangement have been well popularised, Mr Mugisha, says:“URSB has held seminars and workshops for major stakeholders. They have also held radio and TV talk-shows. So it’s work in progress.”

 As to the future of SIMPO Registry arrangement in Uganda, Mr Mugisha, said, “Credit is the fuel that moves the ‘engines’ of the economy and that is business. The arrangement has eased access to credit for medium small enterprises (MSEs). The registry is a beacon of hope for the unbanked public.”

 “I was very much excited about the launch of SIMPO. Our business community, particularly those in the financial sector, need to appreciate broader means through which collateral can be utilised in the utilisation of business loans,” Dr Anthony C.K. Kakooza, Associate Professor of Law (IP Law expert) and currently board chair of the Copyright Institute of Uganda, said.  

On his part, the former chief executive officer of the Uganda Performing Right Society (UPRS), Mr James Wasula, said: “It is a good legislation that has come at the right time to make it possible for banks and other financial institutions to accept Intellectual Property Rights (and other moveable property) as collateral to obtain loan/credit.

 This will make it possible for artists, for example, to mortgage their copyright to obtain loans to grow their businesses. It will also impact positively on other IP assets to gain more value.”
 
 “Of course, these will be possible after the IP holder meets the required terms and conditions such as registration of the IP Asset.

 It will also require the valuation of the IP asset through an IP Audit to establish the value of the Intellectual Property Rights (IPRs) in question. These developments lead to the more fundamental question of IP Management. A lot of emphasis has been put on Registration of IP (which is not bad) but no effort in IP Management. IP Management sets the economic basis of the IPR and determines the worthiness of Registering an IPR,” Mr Wasula said.
 
“In other words, a business decision based on the Business Policy of the Organisation guides the entrepreneur to decide whether to patent an invention or not to – for example. SIMPO will spur innovation and creativity in the long run and make it easier for SMEs to obtain credit and to grow,”  he added. 

The limited appreciation of intellectual property in Africa

 Industrial property statistics available at the African Regional Intellectual Property Organisation (ARIPO) indicate that the number of applications originating from its Member States remains low.
 
The 2019 ARIPO annual report shows that 95 per cent of new patent applications filed were done online compared to 83 per cent in 2018 and 58 per cent in 2017. 

The overall uptake for online registration reached a high of 79.6 per cent compared to 73 per cent in 2018.  The total number of applications was also higher at 1,375 applications in 2019 versus 1,347 in 2018. Patent applications in 2019 were mainly filed online at 95 per cent, the highest figure since ARIPO started to receive online applications. 

The trend was similar to the online filings for industrial designs, utility models and marks, all which were above 50 per cent. The number of patent applications increased by 37 marking a 4.5 per cent increase in 2019 to 868 compared to 831 in 2018. The number of industrial designs applications declined in 2019 reflecting a 31.5 per cent decrease from the 111 applications received in 2018. 

Application filings for 2015 and 2016 grew negatively at -20 per cent and -33 per cent, respectively while those of 2017 and 2018 grew by 9 per cent and 22 per cent, respectively. The number of utility model applications filed in 2019 stood at 23 compared to 42 filed in 2018 marking a decrease of 45 per cent. 

In 2019, a remarkable growth was recorded in trademark applications with an increase of 11 per cent compared to the year 2018. 

The number of classes for the applications filed during the reporting period is 744 compared to 653 of 2018, a growth of 14 per cent.  There was a 13 per cent decline in the number of patents granted in 2019 at 246 compared to 284 in 2018. 

The number of industrial designs registered in 2019 stood at 72, an increase from the 67 registered in 2018 marking a 7 percent increase.  
The number of marks registered in 2019 stood at 226 a 24 percent decrease from 299 in 2018 but the second highest figure in the past five years. During 2019, ARIPO registered 12 utility models, a 500 per cent increase from 2018 and the highest number in the past five years. 

Utility model registrations filings increased by a growth rate of 110 per cent in 2015 and 33 per cent in 2016; decreased by 39 per cent in 2017 and recovered in 2018 to record an impressive growth rate of 147 per cent. 

The average growth rate in the last four years is 63 per cent. “Several reasons contributing to the low filings have been given during feedback meetings and from awareness programmes. The issue of fees stands out most, with users saying that they are high. 

Most of the users do not prioritise the protection of their rights; they would rather plough any saving or profits into their projects,” the head of Formality Examination at ARIPO, Mr Charles Pundo says. 

“As for patents, utility models and designs, this is made worse by lack of drafting knowledge. In many cases, owners of potential applications abandoned the protection process along the way because of this challenge, which is made worse by lack of this expertise in the member states,”  Mr Pundo adds. 

“There is still a long way to go in making the general populace from the member states to understand the importance of IP protection,”  he says.  According to the Uganda National Intellectual Property Policy, May 2019, an effective IP system is one that encourages innovation and creativity by facilitating and promoting application for IP rights. 

The total number of IP rights applications filed with URSB for the period 2011 to 2016 were; patents (47), trademarks (15,048), and copyright (353). 

These are few and according to the Global Innovation Index (GII) 2016, all patent applications made in 2011 and 2012 were foreign, while no local patents of Ugandan origin were filed abroad in 2013.  

The level of registration of IP rights in Uganda remains low, compared to other countries. For example, only eight patents were granted in 2015, compared to 207 in Kenya; 7,552 in South Africa; 16,135 in Mexico; 25,956 in Australia; 65,965 in Germany; and 578,802 in USA the same year.

 Similarly, only 2,666 trademark rights were granted in 2015, compared to 4,620 in Kenya; 35,418 in South Africa; 121,683 in Mexico; 118,353 in Australia; 202,886 in Germany; and 471,228 in USA the same year. No utility model and industrial design IP rights were granted in 2015. 

 “The biggest problem that IP has, not just in Uganda but all over LDCs is that it is very poorly understood, if at all. Intellectual property is intangible, which means that it is property that cannot be seen. 

So, people in LDCs like Uganda, have a problem understanding ownership over something that can’t be seen or touched,”  Dr Kakooza said. 

When we talk of patents which are a product of innovation, the ownership is in the idea; when we talk of copyrights (literary works, dramatic works, et cetera), the ownership is in how the idea has been expressed into something in material form,” Dr Kakooza added. 

 “So, many people do not understand such concepts and in the lack of understanding comes lack of respect over ownership, which leads to the high copycat syndrome that we have. As such, since IP rights are disregarded in such manner, it becomes difficult for the owners of the IP to be able to reap from their fruits and the economic value attached in such IP,” he adds. 
 

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