Microfinance is Contagious

4 August 2010 at 00:01 5 comments

By James Allman-Gulino, KF11 Uganda

One of the neat things about my work as a Kiva Fellow has been the interest in microfinance it prompts for many of the local Ugandans I interact with.  I often talk about my work with BRAC Uganda and MCDT SACCO with my neighbors, the boda-boda drivers who take me to work, and a few local food vendors who I’ve gotten to know relatively well.  Though these people understand the basic concept of microfinance, they still view it as something of an aid intervention, whereby you have to be poor and actually targeted by an MFI in order to get a loan.  Since several of these acquaintances are closer to the middle-income range for Uganda, they had thought that they wouldn’t qualify as “poor” enough for microfinance.  They were surprised and enthused to learn that many MFIs (including BRAC and MCDT) offer a diversity of loan products, which can cater to borrowers ranging from very poor first-time borrowers to well-established business owners.

For instance, one of my neighbors, a local musician named Jimmy who plays traditional Ugandan music for weddings, was interested getting a loan to make a reasonably large purchase of stereo equipment.  However, he thought the purchase would require more loan capital than an MFI could give to a single borrower; when I informed him otherwise, his palpable excitement was fantastic to see.  He began spouting off all his new plans for his business, and was going to tell his band mates and other local musicians to speak to an MFI to get similar medium-size business loans.

The Ugandans that I’ve been talking about microfinance to have also been happy to hear the interest rates for my MFIs’ basic loan products, since the rates are typically more reasonable than money lenders and other sources of capital.  For instance, a boda-boda driver named Pius that takes me to work daily is an excellent driver, and always seems to have plenty of clients.  His wife works as a schoolteacher, and they only have one child to support; all these factors create what should be a pretty decent economic situation for the Ugandan context.  However, I learned that Pius has trouble just keeping his head above water.  Even though he’s always got plenty of clients, he doesn’t own his motorcycle (most boda-boda drivers don’t); he instead has to rent it and make daily rental payments of 10,000 Ugandan Shillings.  Not only are these payments expensive, they’re also quite inconvenient to Pius because he has to withhold that amount from his earnings every day.   This means that high percentage of the money Pius earns by driving other clients and I just goes to the bike payments, instead of being used for his family’s consumption or savings.

Pius with his (currently rented, but hopefully not for long!) motorbike

However, after learning a bit more about the work I was doing, Pius realized that he could get a loan large enough to buy his own bike and stop paying the expensive rental charge.  There are several BRAC Uganda branch locations that are accessible to his home, and at a very reasonable 22% interest rate, he could make enough money driving to cover the loan repayments.   At the end of the loan, he’ll get to own his own bike and then be able to save much more income for his family.

Shortly after our conversation, Pius contacted his local BRAC Uganda branch and began the process of applying for one of BRAC’s individual SEP (Small Enterprise Program) loans.  His application is in process, and hopefully he will be able to receive his loan and buy a new bike in the near future (and maybe even be a Kiva borrower!).  All Pius needed to start this process was the small bit of clarifying information I provided him about how microloans worked; he didn’t have any expectation of my position at BRAC being able to help him or provide easier loan access in any way.  But now that he’s started the loan process, and that new capital looks to make a real tangible benefit in the lives of Pius and his family.  He’s already talking about how once his loan is paid off and he owns his bike outright, he’ll be able to afford much-needed repairs to his house and provide additional income to his wife’s parents back in Busia (a village in eastern Uganda).  And that’s the great thing about microfinance – the more people learn about it, both in the developed and developing world, the more opportunities it opens for borrowers to get affordable loan credit that can really transform their lives.

Entry filed under: BRAC Uganda, KF11 (Kiva Fellows 11th Class), KF12 (Kiva Fellows 12th Class), Micro Credit Development Trust SACCO (MCDT), Uganda. Tags: , , , , , , .

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5 Comments

  • 1. Fehmeen | Microfinance Hub  |  9 August 2010 at 10:19

    Looking at this from another angle, MFIs should improve their promotional campaigns to automatically widen their customer base! However, I think 22% is a pretty high amount, even if borrowers don’t think so. Clearly, it is a favourable alternative to their traditional financial situation.

  • 2. david oglaza  |  6 August 2010 at 05:50

    I have made a number of loans in Uganda always paid back on time! More loans made the more word spreads the more popular it become. The KIVA chain of micro-credit!

  • 3. Debbie  |  5 August 2010 at 14:19

    Hello,

    My name is Deborah and I’m currently working on my Master’s Dissertation studying how/if Uganda can be promoted as a tourist destination in Britain.
    I need 200 respondents (non African) to assist me by filling out the survey.

    The survey takes approximately ten minutes to fill out. Your help is greatly appreciated! If you happen to know anyone else that has been to Uganda then please pass the link on to them. Thank you in advance! Here is the link:
    https://spreadsheets.google.com/viewform?formkey=dE1hOEdTZGczTlJYQ1pic3R4b3pQQlE6MQ

  • 4. Sarah Caldwell  |  5 August 2010 at 09:23

    It’s interesting to note that Ugandans themselves view 22% interest as reasonable. Your post needs to be mentioned whenever the question, “Do MFI’s charge too much interest?” comes up

  • 5. Swade  |  4 August 2010 at 21:33

    James, thanks so much for this and all the other posts you’ve shared. They are wonderful to read, and it’s great to hear how things are going for you and your neighbors in Uganda. Best of luck in the coming months, and miss you!


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