Accountability systems in Uganda are quite different than in the U.S. When we take a loan in the United States, we’re often required to provide collateral and we sign a legal agreement that gives us at least some sense of obligation to repay the loan. I realize things have changed a bit with the economy, but the institutions are still in place.
In Uganda, obtaining a loan is very difficult…let alone for people in far-away villages who wish to borrow the equivalent of about $50 USD. As a result a number of microloan organizations make borrowing money possible and Impact Uganda is just one of them. Given the recent work with Seed for the Lord and Jacaranda Creations related to microloans, I spent some time with friends in Jinja who manage microloans for that organization.
Several facets of their loan process impressed me. First, the accountability system in place networked many people together which helps ensure the loan would be repaid. For example, each borrower must have a cosigner…someone who will know if they do not make their payment and can encourage them if needed. Additionally, each borrower works inside a small group of microloan recipients who also encourage one another. The group’s credit rating is based on the whole group and one failing borrower hurts the whole group. That social pressure demands accountability.
The second facet of the loan process that impressed me was that regular training sessions are held over the course of several months. The training sessions deal with small business topics such as pricing, marketing, or capital asset management. These sessions are required for all loan recipients. Impact Uganda does not simply hand over the money and hope for the best, they train and equip the people of that community to succeed.
The final facet of the loan process that impressed me was that Impact Uganda establishes as savings account for each borrower. Every time a borrower attends a meeting he or she is required to make a savings deposit – an amount determined by the small accountability group. This savings account is used in two ways. First, the account is used as a small bit of insurance against loan default. Second, and more importantly, the account is used as a source of funding future loans. The long-term goal is to teach borrowers to draw from their savings and to repay that amount rather than to request a loan.
I loved seeing the investment in people and relationships, as well as the long-term exit strategy, interwoven into the Impact Uganda microloan program. Great ideas from very helpful friends.