Loan requests overwhelm microfinance support centre

Aug 22, 2020

In the financial year 2019/20, MSC was allocated sh54.72b for lending at the lowest interest rates of 9% per annum for SACCOS

The Microfinance Support Centre (MSC) has expressed concern over the increasing demand for loans, saying the institution cannot meet the current demand.

A report on the operations of MSC, dated April this year by the finance ministry, says whereas the annual loan demand stands at sh167b, the average annual credit financing stands at about sh26b.

"In the last 10 years, MSC has disbursed loans at an interest rate of 13% per annum for SMEs and 9% for SACCOS in the agricultural value chains. This is against an average annual demand of sh167b," the report indicates.

The problem has been worsened by limited outreach centres to effectively cover the entire country.

According to the report, the centre operates in only 12 regional offices: Arua, Hoima, Jinja, Kabale, Kabarole, Kampala, Lira, Masaka, Mbale, Mbarara, Moroto and Soroti.

Commenting on the report, the MSC Executive Director, Peter Mujuni, said the situation has worsened during the COVID-19 period.

Mujuni said because of the demand for affordable loans, the majority of Ugandans affected by COVID-19 have resorted to borrowing from MSC to meet their financial needs.

"The entire business chain has been affected and we have become the preferred financial institution for lending.

"As a result of the high demand, we prioritise the requests, considering at the most vulnerable poor first," he said.

In the financial year 2019/20, MSC was allocated sh54.72b for lending at the lowest interest rates of 9% per annum for SACCOS, agricultural loans, 13%, commercial loans, 17%, and 11% for the Teachers' SACCO compared to commercial rates that were on average 23%.

"About 544 loans/facilities were disbursed. Growth in disbursements was partly attributed to intensified initiatives by MSC to reach out to the youth and women through rural mobilisation, sensitisation and training projects in the regional offices.

It was also due to collaboration with partners, local governments, as well as favourable loan conditions," the report indicates.

The analysis shows that Kampala zone had the biggest disbursement of sh11.2b, which is better than the half-year performance of sh5b in the financial year 2018/19.

Moroto registered the poorest performance with disbursed loans valued at sh421m, followed by Gulu, Lira, Hoima Jinja, Iganga and Soroti.

According to the report, a total of 25,284 groups, comprising 11,178 women, 12,110 men and 1,996 youth were supported.

Performance of SACCOS

The report raised concern on the average processing time for loans at MSC.

According to the report, loan processing takes three months against a target of one month.

"The district co-ordinating Officers (DCOs) pointed out the following issues: groups are more active than SACCOS, hence more emphasis should be put on supporting more groups, elective politics (democracy in groups) has led to dissolution of SACCOS, inadequate facilitation extended to commercial officers, which hampered their activities of monitoring and supervision," the report states.

The report showed that there were fewer SACCOS supported by MSC, especially in the south-western, eastern and northern regions.

The low number was attributed to the collapse of SACCOS due to poor saving culture, lack of policies to guide SACCOS, managerial problems - board members connive with management, political interference, founder member syndrome, multiple borrowing, stringent requirements and need for large savings and capital for accessing a loan from MSC.

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