KAMPALA, Uganda — A recent encounter between a Ugandan businessman and a commercial bank has highlighted the challenges of accessing affordable credit in the country.
The businessman, who wished to remain anonymous, approached one of Uganda’s biggest commercial banks for a loan, offering four houses he owned in Namugongo as collateral. However, the bank’s asset valuer estimated the value of the houses at Shs 120m, significantly lower than their actual worth.
“I was shocked by the valuation,” the businessman said. “The houses bring in Shs 4m per month, Shs 48m per year. How could they be valued at Shs 120m?”
The incident has sparked concerns about the lack of affordable credit options in Uganda, driving borrowers to seek loans from unregulated lenders who charge exorbitant interest rates.
“The existence of unregulated lenders like Mangu Cash shows the gap that needs to be filled,” said Denis Jjuuko, a communication and visibility consultant. “If regulated credit institutions were not taking clients into circles before lending them, the likes of Mangu Cash would not exist.”
The Ugandan government recently passed a law capping interest rates charged by informal moneylenders at 2.8% per month. However, experts say that more needs to be done to address the root causes of the problem.
“An economy where interest rates are as high as they are by even regulated lenders cannot spur sustainable growth,” Jjuuko said.
The deputy speaker of parliament, who was recently threatened by a representative of Mangu Cash over a borrower’s unpaid loan, has vowed to take action to regulate the credit market.
However, experts say that a more comprehensive approach is needed to address the issue.
“If the deputy speaker is desirous of doing something about credit in Uganda, he needs to look at the whole picture and find ways through which credit can easily be affordable and accessible to the majority of Ugandans,” Jjuuko said.
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