It was all pomp and colour as women of ABCD group Nateete marked their 16th anniversary, in the process celebrating the partnership with their biggest creditor, FINCA. For women who own stalls in different markets in town, marking 16 years in a business many financial institutions consider too risky is a huge milestone. At the celebrations, different women offered different stories. “I joined this group in 1996. I have managed to educate my child up to university, and my business has survived because of the loan I get through this group,” said Maria Walusimbi, the group chairperson.
ABCD does not need collateral in order to receive credit from FINCA, one of the deposit-taking microfinance institutions in Uganda; the group acts as security. There are many more such groups that FINCA has worked with. This business model is a clear example of how financial institutions can expand their loan portfolio and not just concentrate on the high-end market, the corporate sector.
Figures from Bank of Uganda show that credit to small-scale entrepreneurs and traders are less than 10%, while the biggest chunk of the credit is extended to the construction and telecommunication companies, which are regarded as less risky. Simon Ahimbisibwe, FINCA marketing manager, explains their formula: “We have different arrangements: big group loans, groups that can afford to borrow over Shs 10m, and small group loans, where a group borrows below Shs 10m.”
FINCA does not just give money to the group and wait for repayments.
“We sensitize these groups before giving them money on how they can use it to get the best out of it. Then we assign them one of our staff as their supervisor to keep on monitoring them to see their progress and keep on guiding them so that they don’t lose this money in redundant expenditures,” Ahimbisibwe says.
Economists say that for small entrepreneurs and farmers to increase chances of accessing credit, they need join clubs like ABCD.
“That’s the way to go; if these small people can form groups and make sure their groups are legally recognised, I don’t see why financial institutions can’t give them credit,” says Ezra Munyambonera, a research fellow at the Economic Policy Research Centre, Makerere University. He advises that the government ought to provide insurance cover to such groups to boost the confidence of financial institutions to lend more.