Sectoral banking can tackle interest rate problem

 

More than a decade ago, while attending the Uganda Manufactures Association (UMA) Board meeting, I advised members that the Association should consider venturing into establishing an Industrial Bank, which would be handy and cater for their peculiar funding situations. To my dismay, this suggestion was snubbed with so much contempt because some of the UMA Executives at that time had interests or stakes or small shares in different commercial banks and they could not allow “their banks” to be competed against by industrial banks!  

 

As of now, most of the then  promising industrialists who had one leg in the industrial business but with too much trust in commercial banks, yet they expected to carry on lucrative industrial businesses, have unsparingly seen their businesses collapse at the expense of their former banking partners.

 

One of the major reasons attributed to the collapse of most Industries in Uganda, are the failure to access cheap investment capital and where one gets a loan from the commercial bank, excessive bank charges and high interest rates that accrue will come into full connivance, forming the final blow. 

 

Commercial banks will always mask themselves behind private debt collectors while executing final processes of business take-over and this prevents the public from vividly knowing the true repercussions of borrowing, since the battles of losing a business or collateral are delegated to independent lawyers, bailiffs or debt Collectors by the banks.

 

In recent times, there has been collaboration between banks and shacks in the Money lending business, whereby the latter easily access big loans from commercial banks and shoulder the easier risk of recovering what they later lend out to the public but at very high monthly interest rates. Most of the people have lost cars, agricultural machinery, electronics and even general house hold items at the hands of shacks. Paradoxically, whoever losses a job as a loans officer in a commercial bank will most likely venture into private money lending, just with intentions to “milk” as much money as possible from the unsuspecting public!

 

One mind boggling aspect is that the shacks have understandably penetrated deep in the country side, farmers are meant to stake their maize gardens, or domestic animals to get financial facilities. This rather defeats the purpose and reason for the much touted micro-finance institutions since 2000, which have greedily and in a corrupt way turned into money minting institutions rather than serving the initial mission of providing financial loans at lower rates.

 

In a situation where development banks have retained names yet operate like commercial banks, obsessed to lend at similar higher rates, micro-finance institutions in equal measure have adopted later-on imported commercial bank tricks which provide no remedy to higher rates or a proper difference for their founding functionality.

 

Among other groups, Industrialists, farmers, teachers, transporters, and private institutions of learning etcetera can cluster together and form development oriented banks to offer facilities at affordable rates. This business model can be similar to that adopted in SACCOS or form village saving and loan associations (VSLA), otherwise with the current trend of capitalism more people are bound to get poor and poorer at the expense of borrowing from commercial banks.