Loans Can’t Bail Out Our Rural Poor

“I have a sister who has a small shop and she is in four savings and loan groups. She has to service each of the loans once a week, which takes a minimum of four hours per day each time. This means that her business is locked for four hours a day for four days a week. When does she work to service her loans?

And by the way, it is often the case that you are responsible for loan obligations of members or your group as well. Take for instance, you are 30 members in the group. Each of you pick loans independently, but when one or two or three or four members, for example, default, all members have to contribute to clear the balance loans of the defaulter(s).

The loans have a high interest. For example, you ask for one million shillings, but you get 845,000 (eight hundred and forty five thousand shillings. You are given the loan that you ask for minus some fees, but you pay interest for the full amount, in this case, one million shillings. So, every now and then I have had to come in and bail her out.

I have three neighbours whose families broke down because of those loans. The wives had to run away and they never ever came back. One of my neighbours whom this misfortune befell is now a single father who is looking after his four kids; and the other two were fortunate enough and have remarried.”

Concerned Citizen

This tragic story was sent to me by a member of my community who follows my posts. He did so, specifically, in reaction to my post in which I reminded that sixteen years later my views that I shared in an interview that was published in The New Vision, Thursday, June 24, 2004, remain valid.

During that interview which was conducted by Harriette Onyalla, a Journalist, I was asked:

“Why do you emphasise training instead of financial assistance? What about micro-finance institutions?

Harriete Onyalla

My response then and which remains valid today was as follows:

Micro-finance institutions (MFIs) give loans to those who lack funds. Loans are not bad but should be given in context. Many MFIs hurry to give out loans and lack enough time to prepare people to use the loans. The clients end up thinking they are given donations.

This is a very big problem and it’s everywhere in this country. Busoga is the worst hit, with too many MFIs targeting women. They get these loans and invest in things like saucepans, gomesi, or buying Christmas clothes for the children.

These are not income generating ventures yet the loans have to be paid back with interest. In the end, people borrow from one MFI to pay another. They end up being indebted to over five institutions. They are becoming poorer because the loan recovery programmes will come and take the few livestock they had before they got the loans.

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