Microfinance institutions seek more government capitalisation to lower lending rates

Microfinance institutions and savings groups in Uganda have appealed to the government for more funding support, which they say will help lower interest rates on their loans.

Speaking during the first ever Microfinance and Savings Group Conference held in Kampala on Tuesday, November 29, 2022, Shafi Namboobi, the president of the Association of Microfinance Institutions in Uganda- AMFIU, called for Shs87 billion support to boost their operations.

Namboobi said that for microfinance and saving groups to help promote a savings culture and increase rural household incomes, they need more capitalization.

The average institutional interest rate in the country stands at 20 percent following the October monetary policy instrument issued by the central bank, which saw the Central Bank Rate increase to 10 percent from 8.5 percent.

However, in an effort to strengthen financial inclusion across all sects of Ugandan society, the government has always planned to lower the interest rate on loans to between 6 to 9 percent, arguing that this will decrease the cost of doing business hence increasing investment.

Namboobi says that these institutions like other sectors suffered serious setbacks following the nearly 2-year lockdown triggered by the COVID-19 pandemic. “We are looking at having a business that will stand on its own for years, unlike those that were wiped out by the COVID-19 lockdown after effects. The more a microfinance institution grows, the more customers it extends credit to, which grows the people in turn,” he said.

It is now more than 9 months after the economy reopened, and Namboobi says that they are seeing a very great improvement in the uptake of loans in various institutions. He said that Ugafode microfinance alone has disbursed up to Shs10 billion in loans, up from Shs2 billion. 

Mr Haruna Kyeyune Kasolo, the State minister in charge of Microfinance, said that a gathering of this nature is the first of its kind and that government intends to find views from the real players on how to develop this sector.

“Microfinance is very key, if we want to develop this economy, we must ensure that we support this industry because a majority of Ugandans are served by these institutions to a tune of almost 80 percent. So this platform will form a vibrant common voice,” said Kasolo.

According to Kasolo, the various government interventions through microfinance institutions and saving groups have started yielding results, adding that savings from Emyooga SACCOs alone have grown to 74 billion Shillings as of this month.

Over Shs100 billion is stuck with the various SACCOs, where members have failed to refund these would-be revolving funds, and the minister says he will traverse the entire country to solve this problem.

The minister also added the Parish Development Model-PMD is moving at a slow pace, because of the due diligence required in the process. He says that government wants to go systematically so that by the time money is dispersed, issues of non-repayments don’t surface.