THE EAST AFRICAN-NAIROBI-KENYA
Opinion
Monday, December 23, 2002
The Banks are Coming; Lock Up Your Title Deeds!
By JOACHIM BUWEMBO
The past few months have seen a strange development in the Ugandan economy. Bankers are marketing credit!
It is rather frightening. For more years than anyone can remember, bankers never lent money to "little people." Many office employees had bank accounts solely so they could be paid by crossed cheque, or their employer needed an account number in which to pay their salary.
If such a person had some savings in the bank, the interest paid was as little as half of one per cent per year. And shylock bank charges were imposed on all transactions. (Well, those still exist, but they are smuggled in once a month so customers don�t notice).
An ordinary Ugandan had no business asking a bank for a loan. To begin with, interest rates were simply dizzying, going upto 40 per cent sometimes. All this when the inflation rate had been kept to single digits for over a decade, some years running in the negative. But the bankers had no time for small borrowers pleas�. In any case, they also demanded stiff collateral.
So bankers were only known to lend to the rich traders and manufacturers. Smaller fellows who dared borrow had their houses, which they gave as security, auctioned almost as surely as night follows day.
From that "normal" situation, which had obtained from before half of today�s Ugandans were born, suddenly the bankers are coming down to the people, asking them to borrow. Curious indeed.
A number of factors have brought this about: the increasing competition in the banking industry; persistently low inflation; a lower return on the Treasury-bills that banks preferred to buy with their excess cash; big borrowers getting better offshore credit deals, and the coming of microfinance credit institutions.
The result is interesting to watch. Banks, previously stiff and colourless institutions, are into vigorous advertising these days. Nor have they stopped at media drives. They have started a door-to-door campaign, with their marketing staff combing the city for small business people and corporate employees, persuading them to take up loans at rates that are falling towards 10 per cent with repayment periods of up to 20 years. One bank is advertising an interesting package that specifically helps potential borrowers access collateral, in other words to acquire security and qualify to borrow!
The people are naturally suspicious. Since when did bankers become concerned about our welfare, they ask. Are they leading us into a trap? I asked a seasoned Ugandan banker where the catch was in all this outpouring of generosity from the bankers. If the terms are so good, I asked, why are new borrowers already defaulting and their property being auctioned?
There is no catch, the bankers assured me. These loan schemes are straightforward and unlike gambling machines, are not rigged against the customer. But, he added, the banks are just sure that there will always be people who will default, however generous the terms. The banker went on to say that they dislike people who pay off debts too quickly and actually penalise them for it. The system needs some defaulters and our way of life simply ensures these will always be there in large numbers.
When Ugandans get money from a bank to expand their business or to build houses, many of them, for some reason, rush to buy a big car instead. They spend a chunk of the loan womanising and then finally try to use the balance for the purpose for which the loan was intended. Needless to say, such projects usually fail.
But there is also laziness and sheer reluctance to pay. The repayment instalments tend to appear so small that a borrower sometimes puts off his monthly obligations, saying that he will pay the following month. It becomes harder and he soon starts falling behind schedule. The bank computers � which are just that, computers � unfailingly multiply his indebtedness until his house is auctioned.
With our kind of merrymaking culture, one cannot be so sure whether easy credit is a good thing or not.
Joachim Buwembo is the Editor of the Sunday Vision of Kampala
E-mail: [EMAIL PROTECTED]
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