MicroLeasing in Uganda ?

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MicroLeasing in Uganda ?

‘A program design of the supply side of Microfinance’

* CHAPTER 9. APPENDICES *

Niek Jansma

International Financial Management

Rijksuniversiteit Groningen

Faculty of International Business & Economics Landleven 5

9747 AD, Groningen

Uppsala Universitet

Ekonomikum, Department of Business Studies Kyrkogårdsgatan 10

751 20, Uppsala

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Microleasing in Uganda? ‘A program design of the supply side of Microfinance’

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9. APPENDICES

INTERVIEW 1: ACFODE

INTRODUCTION

How did your organization start?

In 1985 as a result of a conference in Nairobi where Ugandan women were denied while they discussed women issues. Four women realized women needed a voice and Action for Development (Acfode) was born.

How are you different from other MFI’s in kampala?

ACFODE is an indigenous membership organization that keeps women’s interests. Members participate in the planning and organization of activities. Microfinance is just a small part of its organization on top of gender equality issues. Because of demand and to empower women economically, they started microcredit activities around 1996 with support of DFID.

ACFODE is non-profit

Could I get an annual report before I leave (so I can skip the financial questions?) LEASING

Do you do micro-leasing as well? What types of leasing do you do?

-Financial leasing (full cost recovery and sale of asset in the end), -Hire-purchase (gradual ownership transfer with each payment) -Operating lease (short term use of equipment)

What are the main advantages of leasing over lending? What % down payment do you require with each lease? LOANS

What are your criteria for selection to give out a loan/lease? -Trust

-Literacy? Starting capital? Business plan? Small business already? -Credit history

-How do you screen your applicants? A viable micro business.

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How do you know people have not gotten loans at other microfinance institutions already?

Deeply rural, not handled by other MFI’s

What are the requirements when choosing a location for a loan/lease office? -differences rural / urban ?

Field officers had motorcycles and went from district offices to rural areas or stayed at the rural areas where they were from (they served areas they were from, since language was key)

Do you prefer loaning to women or minorities?

At least 80% of a group has to be women and the leadership position of the group should be filled by a woman.

ACFODE targets the poorest of the poor, not the easily targeted, mostly rural, whereas other finance institutions are more business orientated.

Do you give any preference to certain projects to loan to? (education etc,..) See above

What is your maximum loan/lease amount?

Do you give out both individual- and group loans/leases? -which works better in terms of repayment rates / profits? -differences / pros and cons of both

How does the individual loan work? -Collateral?

-What is the repayment rate? How does the group loan work?

-how do the groups form?

-do you use Progressive loans / Dynamic incentives? -what is the repayment rate?

Mother group of 20 people consisting of solidarity groups of 5 people. Women were completely dependent on men, hence had no security collateral nor any economic resources whatsoever. The solution for ACFODE was the group guarantors and peer pressure. The other 4 people in the group are guarantee for the other. Local councils are advised, elders of the village, then groups are empowered and trained to trust each other.

Progressive loans, when the last groupmember has cleared its loan, the rest of the group can advance to the next level (a bigger loan). Building their leadership skill.

What do you do in case someone can’t pay its loan / gets ill / dies? How do you establish your interest rates?

Interest rate is 3%.

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At first at weekly meetings, but this changed to monthly due to high costs, grace period of a month as well.

How do you establish the repayment packages (amount of installments) GENERAL

If you give out a loan, do you give training in bookkeeping etc. as well? -what structural support do clients get after receiving the loan?

If you just give money without capacity building people will default, acfode has a repayment rate of 98% with defaults mainly due to deaths etc,..

Pre-disbursement training, business counselling, stock taking, bookkeeping,.. on a monthly basis. UGAFODE furthermore gives training on how to use the loans (‘loan tracking’) and how to separate loans from family. The loan appraisal committee checks the business plan, if not viable,.. more training is given. Furthermore ACFODE makes lenders start village banks that are not owned by ACFODE.

Do you monitor the operations of the lender’s micro-business in any way? A fied officer attends the monthly meetings. Quarterly visits.

How do you market yourself to the Ugandan population? -get your message over

What would you say are the main positive effects of your presence for the local economy / community?

What would you say are the main negative effects of your presence for the local economy / community?

What do you do in case of price / currency fluctuation / inflation? (do you hedge?) How is the regulation of MFI’s in Uganda organized?

-how is the transparency in the Ugandan MF business

What are the most important government regulations you have to adhere to?

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5 OUTREACH - SUSTAINABILITY

What is your main aim, outreach or sustainability?

Outreach .

1 2 3 4 5 6 7 8 9 10

As many of the poorest Not that many, but poorest of the poor

Sustainability .

1 2 3 4 5 6 7 8 9 10

Full cost recovery FINAL

What are the main problems you encounter(ed)? -Uganda specific and general.

If we would set up a loan system for funding small bakeries in southern Uganda, what are according to you important factors we did not talk about, but should consider?

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INTERVIEW II: AMFIU

INTRODUCTION

How did your organization start?

AMFIU started in 1996 by 5 mfi’s that wanted their voice heard because mfi’s were not recognized as a part of the financial system yet and to have MFI’s contribution recognized, facilitate information sharing in the industry, best practices, capacity building. They don’t give rules and regulations, but have codes of conduct to regulate the behaviour of its members, but this is not obligatory.

There is no law in Uganda to disclose information, so high information assymetries and transparency is selective, even banks are free to disclose whatever they want.

AMFIUs main goal is to lobby at the gvt to get these laws and constitutions in place

How are you different from other MFI’s in kampala?

Could I get an annual report before I leave (so I can skip the financial questions?)

LEASING

Do you do micro-leasing as well? What types of leasing do you do?

-Financial leasing (full cost recovery and sale of asset in the end), -Hire-purchase (gradual ownership transfer with each payment) -Operating lease (short term use of equipment)

What are the main advantages of leasing over lending? What % down payment do you require with each lease?

LOANS

What are your criteria for selection to give out a loan/lease? -Trust

-Literacy? Starting capital? Business plan? Small business already? -Credit history

-How do you screen your applicants?

Do you give out both individual- and group loans/leases? -which works better in terms of repayment rates / profits? -differences / pros and cons of both

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-how do the groups form?

-do you use Progressive loans / Dynamic incentives? -what is the repayment rate?

Peer pressure

How does the individual loan work? -Collateral?

-What is the repayment rate?

Constant contact after and before the loan, which results in high monitoring and administration costs, which in turn results in high interest rates.

What is your maximum loan/lease amount?

The amount of loan does not define microfinance, its serving the underserved, 1 year loans is average.

How do you know people have not gotten loans at other microfinance institutions already?

What are the requirements when choosing a location for a loan/lease office? -differences rural / urban ?

Do you prefer loaning to women or minorities?

Do you give any preference to certain projects to loan to? (education etc,..)

What do you do in case someone can’t pay its loan / gets ill / dies?

A lot of MFis have insurance against illness/death of their clients. Deposits also help mitigate this risk.

How do you establish your interest rates?

Smaller MFIs usually look at what their neighbouring MFI charges, theres a couple of leaders in the industry like Finca, Pride, Uganda Finance Trust, Faulu.

How do you collect your repayments?

The biggest difference between banks and MFIs is that most MFI’s go to their clients, while with banks, clients have to go to the bank.

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8 GENERAL

Do you monitor the operations of the lender’s micro-business in any way?

If you give out a loan, do you give training in bookkeeping etc. as well? -what structural support do clients get after receiving the loan?

No bookkeeping training, this will only raise the price and thus the interest rate, most important is the payback rate, and that the clients business is growing, no matter how.

How do you market yourself to the Ugandan population? -get your message over

What would you say are the main positive effects of your presence for the local economy / community?

Transforming MFIs into licenced companies (that are able to take deposits), and bringing MFIs, Governmnt and regulators together.

What would you say are the main negative effects of your presence for the local economy / community?

What do you do in case of price / currency fluctuation / inflation? (do you hedge?)

How is the regulation of MFI’s in Uganda organized?

-how is the transparency in the Ugandan MF business

Being a member of AMFIU requires certain criteria; at least 2 years of operations, audited by external audit every year and general transparency.

What are the most important government regulations you have to adhere to?

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Are there any securities offered by the government towards you or MFI’s in general?

NGO’s don’t pay taxes

OUTREACH - SUSTAINABILITY

What is the average poverty level of your clients?

Poorest (under 2$ a day) Very Poor Least poor

1 2 3 4 5 6 7 8 9 10

What is your main aim, outreach or sustainability? Outreach

1 2 3 4 5 6 7 8 9 10

Sustainability

1 2 3 4 5 6 7 8 9 10

Microfinance is getting commercialized and by law it is a business, so sustainability is key, but you need both sustainability and outreach.

FINAL

What are the main problems you encounter(ed)? -Uganda specific and general.

-Regulation of Microfinance industry, it is not fully regulated, it is a dual economy with a regulated and unregulated part.

-Interest rates are still very high due to high costs, but also inefficiencies. -Microfinance services offered are still narrow.

-Over 70% of Uganda is still dependent on agriculture, which is not financed as much. -Regulations to make things work better is paramount.

If we would set up a loan system for funding small bakeries in southern Uganda, what are according to you important factors we did not talk about, but should consider?

-Know your market / feasibility study. -Check if the market is there to sell bread

-DFCU bank – micro leasing opposite railway station in the yuryam house

Can I get your email for possible future questions?

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INTERVIEW III: CENTENARY BANK

INTRODUCTION

Before it was called centenary rural development bank. How are you different from other MFI’s in kampala?

Its main aim: to uplift the standard of living for rural people through financial means (savings and credit).

Do you do micro-leasing as well?

If you don’t have any collateral but a sound business plan and want to start (for instance) a bodaboda, centenary might buy the boda for you and use it as collateral.

What types of leasing do you do?

What are the main advantages of leasing over lending? What % down payment do you require with each lease?

25% down payment if it is the only source of financing. If he already has a boda and want to buy a second to expand, he might not have to pay the 25%

LOANS

-How do you screen your applicants? - Collateral

- Has to be a bank customer with an account - Identity / employer letter

- Rural, letter from chairman (local council) - Referee

- Viable project (is checked by assessment)

- A year of experience in the business or practiced it for at least 2 seasons (if agricultural)

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Don’t, Loan depends on character of person. Urban this is very hard depends on above criteria. Rural is easier to assess because of Clanleader / Chairman and friends/neighbours

Centenary is the only bank to reach a lot of rural people (differences see above)

Business analysis to assess where to open a loan office; potential of deposits, districts are decentralized. The gvt sends money to districts for agriculture, healthcare etc. Centenary tries to get all those accounts, then looks at individual loans.

Do you prefer loaning to women or minorities? 20% has to be women.

Do you give any preference to certain projects to loan to? (education etc,..) 25% has to be agricultural

25% has to be consumption loans (education etc.)

Rest is business, they do diversify, but not according to certain limits, only bound by viability.

What is your maximum loan/lease amount? Minimum = 50.000 Ush

Maximum = 1,5 bln Ush to a single borrower Average = 5 mln Ush

Only individual loans, they tried group loans, but abandoned it because it needs a lot of organization and was very expensive. Furthermore, with a group the institution dictates the loan instead of the individual.

-What is the repayment rate?

Started with individual loans, they take a wide range of collateral (flexible), however sometimes there is no proof of ownership of a piece of land so they have to check with clanleaders and local council (local governmental chairman) of the village.

25% of the loan is collateral (see lease) How does the group loan work?

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- Insurance for a bodaboda etc have to arrange themselves together with the bank. - Agriculture and shops are not insured.

How do you establish your interest rates?

Interest rate is based on the market, and consists mainly of monitoring costs. Lenders have no information so the bank has to monitor. During and after the appraisal the bank has to explain a lot to its lenders.

How do you collect your repayments?

Around 70% of the customers come to the bank to pay, 3-4% do not pay which results in legal action / forcefull recovery.

How do you establish the repayment packages (amount of installments)

Monthly repayments for a maximum of 12 months. Salary loans up to 2 years and investment loans up to 3 (lodgings etc,..). The grace period for loans depends on the agriculture crop / project (livestock; cows have to mature etc,..)

GENERAL

Training only on loan management, they sometimes work together with NGO’s that give more training.

Furthermore, the gvt has ‘extension workers’ on the sub-county level, that teach farmers on farm management, centenary mainly targets these trained farmers.

Do you monitor the operations of the lender’s micro-business in any way? How do you market yourself to the Ugandan population?

-get your message over

A lot of successtories of expanding businesses, poor children going to school etc,.. What would you say are the main positive effects of your presence for the local economy / community?

See above

What do you do in case of price / currency fluctuation / inflation? (do you hedge?)

Reserve at central bank of 25% of total treasury (!) against inflation or ‘unfavourable business climate’ (see also ‘main problems encountered’)

How is the regulation of MFI’s in Uganda organized?

-how is the transparency in the Ugandan MF business - Ugandan Microfinance Union regularizes MFI activities

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What are the most important government regulations you have to adhere to? - Gvt sets rules for disclosure

- Not allowed to issue checks over 20mln Ush.

- Centenary has 27 branches nationwide, if they want to expand they have to check with central bank.

- The protection of the customer’s savings (collateral) is checked by the bank of Uganda - Central bank also checks positions in key institutions, like the general manager etc,.. Are there any securities offered by the government towards you or MFI’s in general? OUTREACH - SUSTAINABILITY

Outreach .

1 2 3 4 5 6 7 8 9 10

As many of the poorest

Sustainability .

1 2 3 4 5 6 7 8 9 10

Full cost recovery

FINAL

75% of the economy is agricultural and the gvt wants to liberalize. In the past they worked with corporate societies that had a lot of bargaining power and could set prices. Now with more liberalization it is more and more individual. If agricultural loan is given based on a certain price of a certain crop, these prices tend to fluctuate more and more. If we would set up a loan system for funding small bakeries in southern Uganda, what are according to you important factors we did not talk about, but should consider?

-Target market,.. if you can sell enough bread -raw materials (availability, price)

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INTERVIEW IV: CENTRAL BANK OF UGANDA

Bakeries

If we want to establish small bakeries based on micro-leasing ovens and other equipment, what are the main (central-bank) rules we have to adhere to and who supervises this?

Central bank only regulates deposit taking institutions Tier 4 do not get a license if not deposit taking

Do we need to report, like every year? Are there interest rate limits?

Interest rates are not controlled by the gv’t, but gv’t is concerned because MFI interest rates are too high (avg 36%),.. gv’t wants this to be 16%

What do we need to lend money to the bakeries, do we need a Ugandan business or just a Ugandan bank account?

- Ugandan registered company - Accounts from the last 3-4 yrs

Do NGO’s pay tax over their profits?

Taxing is dependent on your license. Tax exemptions are given by the National Uganda Investment Authority, they can give you 5-10 yrs for free.

What are the rules if we want to take deposits as well? (tier 4 to tier 3)

Start as tier 4, register as a savings&credit cooperation, this way you can collect savings from registered members. After this, grow to tier 3.

If you want an MDI:

Tier 1 - 4 bln Ush

Tier 2 - 1 bln Ush

Tier 3 - 500 mln Ush

Do we need certain licences?

For tier 3 and higher, yes Leasing

What types of leasing do mfi’s do?

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15 Regulation

How do you regulate the MFI market in Uganda?

Central bank doesn’t regulate, only regulates deposit taking institutions. AMFIU has guidelines and data.

There are only four MDIs (Faulu is restructuring to be tier 3 MDI right now) UML, Pride, Finca and UFT.

What are your criteria for selection for accepting MFI’s?

-how do you screen the MFI’s that are applying (check-ups before and after) Do you give preferable treatment to MFI’s that loan to women or minorities? or to certain projects? (education etc,..)

How do MFI’s establish their interest rates? Is this regulated?

Interest rates are not controlled by the gv’t, but gv’t is concerned because MFI interest rates are too high (avg 36%),.. gv’t wants this to be 16%

Do you monitor the operations of the MFI in any way?

If licensed as an MDI they are monitored weekly/monthly, and need MIS to report on a weekly basis. Quarterly / yearly + audited reports every year + through inspection at MDI every year.

How big is the regulated vs. unregulated MFI market ?

What are the most important government regulations you have to adhere to? What do MFI’s do in case of price / currency fluctuation / inflation?

-Are there any securities offered by the government towards you or MFI’s in

general for inflation or other dangers?

- A deposit protection fund, this is insurance against an MFI’s default. Up to 3 mln per lender, only for tier 1 and 2, working on tier 3.

- Furthermore, due to the lack of a national identity system / -laws the credit reference bureau is going to implement a biometric system with fingerprints.

LOANS

Do you give MFI’s criteria for selection to give out a loan/lease? -Trust

- Need shareholders / board of directors, maximum of 30% of the shares per person, first shareholders, then license.

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How does the group loan / individual loan work? -how do the groups form?

-which works better in terms of repayment rates ? What is an MFI’s maximum loan/lease amount?

How do they know people have not gotten loans at other microfinance institutions already?

- A credit reference bureau is being set up now by the central bank to ascertain who has gotten a loan at other MFI’s already (it’s in the final stages now)

What would you say are the main positive effects of your presence for the local economy / community / microfinance world?

What would you say are the main negative effects of your presence for the local economy / community / microfinance world?

What is the average poverty level of microfinance clients?

Poorest (under 2$ a day) Very Poor Least poor

1 2 3 4 5 6 7 8 9 10

What would you say is the average level of outreach / sustainability of MFI’s in Uganda?

Outreach

1 2 3 4 5 6 7 8 9 10

Sustainability

1 2 3 4 5 6 7 8 9 10

FINAL

One of the main discussions is to regulate the tier 4 institutions but thre is no capacity to regulate it, there are over 500.

If we would set up a loan/leasing system for funding small bakeries in southern Uganda, what are according to you important factors we did not talk about, but should consider?

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INTERVIEW V: CMF

INTRODUCTION

As a mass market provider of financial services How are you different from other MFI’s in kampala? Local ownership

Do you do micro-leasing as well?

No leasing, maybe when more funds are available What types of leasing do you do?

-How do you screen your applicants?

- Should have a business for < 12 months (no startup loans) - Collateral (indiv.loans)

- Guarantor

- Bank statement History

- Biggest group come to CMF to get a loan (walk-in)

No way of knowing if people also loaned at other MFI’s, however the credit reference bureau will centralize borrower records and the central bank of uganda is working on that now.

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18 - They go to villages to check demand.

- Loans work best in Rural areas where people are less mobile and there’s more peer-pressure.

- In rural setting group loans have better repayment rates and in Urban setting individual loans have better repayment rates.

Do you prefer loaning to women or minorities? No preference. 45% women.

Do you give any preference to certain projects to loan to? (education etc,..) What is your maximum loan/lease amount?

Minimum = 100.000 Ush indiv.

Maximum = 400mln Ush indiv.

Minimum = 125.000 Ush Group

Maximum = 3mln Ush Group

-What is the repayment rate? How does the group loan work?

One person comes to CMF, then CMF visits the group. Groups of 30-50 consist of smaller groups of 5, when one defaults the group of 5 is responsible, if they don’t pay up, the group of 30-50 is responsible.

What do you do in case someone can’t pay its loan / gets ill / dies? In-house insurance,.. 1% of the loan is kept as insurance.

How do you establish your interest rates? Monitoring costs

Cost of borrowing + margin

How do you collect your repayments? People come to CMF to repay.

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-what structural support do clients get after receiving the loan?

Every once in a while CMF offers courses when they get someone to pay for it. Do you monitor the operations of the lender’s micro-business in any way? Quarterly, and they check after 3 days if a repayment doesn’t come in. How do you market yourself to the Ugandan population?

-get your message over Clothes, colors

- Banking the unbanked - widening the financial sector

- enabling local people to walk into a bank and deposit money, financial awareness. What would you say are the main negative effects of your presence for the local economy / community?

Corruption every once in a while, frauds.

They go into SWAPS (calculated in interest rates) arrangements. Borrow in dollars and pay a fixed amount.

How is the regulation of MFI’s in Uganda organized?

-how is the transparency in the Ugandan MF business - Part of AMFIU

- Central Bank arranged MFI deposit taking act. CMF has been tier II from 2000 (= credit institution) Difference between tier II and III is the capital ratio requirement, Tier III is more of a stepping stone towards tier II, the rules are not yet that harsh. CMF is way more regulated.

- Central bank of Uganda gives regulations

No problems with competition, market is big enough.

Are there any securities offered by the government towards you or MFI’s in general? 3mln Ush for every lender if CMF defaults

Outreach .

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Sustainability .

1 2 3 4 5 6 7 8 9 10

Full cost recovery FINAL

- Funds are very expensive to loan which makes margins very small. - Training, capacity building of staff

- Getting the right technology in place (MIS) to keep track of whats happening everywhere.

- Labour intensive

- Check established women groups, they been around for a long time and are entrepreneurial already.

- Making the unit (leasing) not permanent. - There are organizations for women groups;

Action for development (ACFODE), Ugandan women effort to save orphans (UWESO)

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INTERVIEW VI: FAULU

INTRODUCTION

Faulu started in Kenya, Faulu Uganda started as a branch of this. Started by “Food for the hungry” to give poor people access to financial services. 21 branches in Kenya, 8 in Uganda (of which 4 urban and 4 rural). They lend to the economically active poor.

How are you different from other MFI’s in kampala?

Faulu is in the process of becoming tier 3 (deposit taking) now they’re borrowing money from commercial banks and then lend that money out again. A lot of money goes to the interest on those loans.

Do you do micro-leasing as well? No

What types of leasing do you do?

-How do you screen your applicants? Some clients don’t know how to write.

Don’t know, but MFI’s put defaulters in the newspaper to warn other MFI’s and have them repay.

-Density

-market research for where to offer which product.

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22 Do you prefer loaning to women or minorities?

No preference, but women perform better, the portfolio at risk is lower for women. Do you give any preference to certain projects to loan to? (education etc,..) What is your maximum loan/lease amount?

Individual loans have no set criteria, depends on cash flow. Interest is paid monthly, No grace period > 6 months. Weekly meetings.

People that have evolved beyond the group loan and individuals can both take this loan, however need a collateral of 70%

How does the group loan work? -how do the groups form?

Groups have set criteria: weekly repayments with no grace period.

Loan officers do mobilization, first train a group and assess its cohesiveness. Then give a loan, groups are 10-15.

Weekly meetings+repayments. People need a business already.

People that outgrow the group can form new, smaller groups (max5) in the same area,.. they can be from different groups.

What do you do in case someone can’t pay its loan / gets ill / dies?

Insure with microcare, client/spouse/children are insured against death and disability. Takes 1,5% of the loan. Fire+theft is too risky for fraud.

How do you establish your interest rates?

Around 3% per month (36 annually) biggest cost are the funders. Average cost of funds is 14-15%

Lenders come to Faulu to repay, treasurers repay at cashiers, not at loan officers (to avoid default, even after the loan has been approved) so the loan officers never handles cash but the lender picks it up.

Transaction costs are for the clients, only in case of default, a loan officer is sent into the field.

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23 GENERAL

If you give out a loan, do you give training in bookkeeping etc. as well? -what structural support do clients get after receiving the loan? Train groups before the loan (groups pay for this themselves).

With individual loans they have more of an advisory role.

Do you monitor the operations of the lender’s micro-business in any way?

Operational costs are very high, group loans are so sensitive that they really need the weekly monitoring, even public holidays distort the numbers. If not checked for a week, people start to default already so numbers are checked every day.

-Effectively implemented the MIS ‘Equinox’ (one of the best microbanking softwares) -Transformed all branches into required banking halls.

-Proud of brand name.

New shareholder is ‘opportunity International’ (biggest MFI worldwide), they have a 63% majority stake (>30% is exception by central bank).

Faulu lends in local currency and avoids borrowing in foreign currencies, the financier can hedge themselves (they have the knowledge) Faulu rather pays a little more interest. Only a low amount of borrowing is in USD (about 75000). The FOREX risk is checked on a daily basis and every month a presentation is made of the fluctuation. How is the regulation of MFI’s in Uganda organized?

-how is the transparency in the Ugandan MF business Faulu is part of AMFIU,

What are the most important government regulations you have to adhere to? -Central Bank gives guidelines that you are supposed to follow.

-Tier 4 is not able to collect savings.

-LSF (loan security fund) 15% refundable after repaying the loan, LSF is only for groups, individuals have collateral.

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1 2 3 4 5 6 7 8 9 10

As many of the poorest Sustainability

1 2 3 4 5 6 7 8 9 10

Dependent on donations Full cost recovery

FINAL

They key is to do it through an organization that is already on the ground (i.e. existing sacco)

Demand for bread is always there.

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INTERVIEW VII: FINCA

INTRODUCTION

Finca’s objectives make them different.

LEASING

Do you do micro-leasing as well?

No leasing, some asset loan when finca pays the suppliers.

What types of leasing do you do?

LOANS

They need some economic activity with a cash flow already; they’re interviewed about their savings etc. They need a guarantee, Individual lending needs a collateral, and with the group loan you can only lend a certain % of your cash flow.

Group loans have better repayment rates

How does the group loan work? -how do the groups form?

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Groups are 15-50 in size, and split up according to location. If one defaults the whole group is responsible. Everyone in the group loans an own amount, how finca lends to groups depends on the ‘dynamism’ of the target area

-What is the repayment rate? What is your maximum loan/lease amount?

Minimum = 500.000 ush

Maximum = 10.000 usd - Individual

Minimum = 50.000 Ush

Maximum = 6mln Ush - Group

No way of tracking if a person has had a loan at another MFI.

Market survey, check the target market in numbers, check for potential lenders

Women are still 75% of the lenders as lending to women was the initial mission.

No preference for certain projects.

What do you do in case someone can’t pay its loan / gets ill / dies? How do you establish your interest rates?

Look at competitor rates, incorporate cost of funds plus a margin. If Finca lends they save as well (?)

Lenders go to finca to repay, but if offices are too remote finca goes to the lenders to pick up the repayments.

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27 GENERAL

Do you monitor the operations of the lender’s micro-business in any way?

Loan officers visit the business before the first payment, after that visits are not structural.

If you give out a loan, do you give training in bookkeeping etc. as well? -what structural support do clients get after receiving the loan?

No training in bookkeeping

Finca is a lot in rural areas, from all MDI’s Finca handles the poorest people.

They calculate inflation in their interest rate, so if it fluctuates it goes from their margin, or they change the interest rate.

Finca is part of AMFIU.

- Some MFI’s are regulated by the central bank, some are licensed as NGO and some MFI’s are regulated by Min. of Fin.

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Deposit protection fund, government, gvt will pay 3mln per account to the lenders of the MFI that defaults (from tier 3).

1 2 3 4 5 6 7 8 9 10

Sustainability

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FINAL

-Multiple borrowing

How do you cover the risk but at the same time give the service they need, trust is a big problem, how to mitigate this risk.

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INTERVIEW VIII: MCDT

INTRODUCTION

Save the Children started children projects to give money to mothers for schoolfees etc,.. from this it changed to income generating activities, people thought it was charity, so save the children formed MCDT as a separate entity to make clear it’s LOANS they’re giving. Started with 20 ppl, now 4 branches.

How are you different from other MFI’s in kampala? Targeting the real poor with only grouploans/

-How do you screen your applicants? - 100% women

- Have to be in geographical area - have to be in groups of 5 people - also give startup loans.

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Do you give any preference to certain projects to loan to? (education etc,..) No preference.

What is your maximum loan/lease amount? Minimum = 100.000 Ush

Maximum = 1mln Ush

Only grouploans

-What is the repayment rate? X

How does the group loan work? -how do the groups form?

- When entering an area they first arrange a meeting through the local council, tell them to form groups,.. if people outgrow the groups after a while they have to go to other MFI to get an individual loan, MCDT also want to give out individual loans in the future and school fees loans.

- Within groups of 5 there are 2 leaders, 8 groups of 5 make up a bigger group of 40 with 2 leaders again, this group of 40 meets weekly and repays to the loan office.

- Kampala branch repayment rate is 100%

- Rural branches average around 80-90% repayment,.. mostly agricultural businesses. What do you do in case someone can’t pay its loan / gets ill / dies?

3% of the loan is for insurance, is not outsources, arranged internally. How do you establish your interest rates?

Interest rate is 3% monthly (36% ann.), mostly built up from administrative costs, inflation and markup.

-Salaries

-Transport (every week into rural) is trickiest part and most expensive. -All loan officers have airtime so they can call when in trouble

-Rotate loan officers so they do not become friends with the lenders, but keep clear records of problems so next loan officer knows what is happening.

Repayments/applications are arranged at the weekly meetings, MCDT goes to the client. How do you establish the repayment packages (amount of installments)

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31 GENERAL

MCDT visits before they give the loan and gives initial training in rules and regulations of MCDT and in how to organize groups.

Do you monitor the operations of the lender’s micro-business in any way?

Monitoring after giving the loan is by sampling. From every loan they give they need a status report from the group. Simplify the forms.

- To empower women economically, children go to school and a general omprovement of livelihoods givind confidence.

Defaults are negative effects,.. people can become your enemies.

Part of AMFIU, problem of regulation, problem of regulation is that they cannot collect savings, theyre thinking of changing into a sacco because being tier 3 MFI would divert from original mission.

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Outreach .

1 2 3 4 5 6 7 8 9 10

Sustainability .

1 2 3 4 5 6 7 8 9 10

Full cost recovery

About 15% is grants, 60% is subsidized loans (ie. From stromme), rest is self generated, cost of funds is very high and loans are too short term =< 3 yrs, ideal would be 5 yrs.

FINAL

Funding is major problem (short term)

They got money from the grameen trust which was good, because they could repay it in 5 years.

- Is market not saturated? - Price

- Bakeries to supply schools/hospitals !! Uganda martyrs University,..

CARITAS

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INTERVIEW IX: MED NET

INTRODUCTION

Med net is an affiliate of ‘World vision uganda’ of which microfinance is a small part of their operations, they mainly do Area Development Programmes (ADP’s) Med-Net is a separate sustainable part of world vision and started operations in 1997.

Med Net targets mostly rural lenders because world vision also targets rural

LEASING

Do you do micro-leasing as well?

No

What types of leasing do you do?

LOANS

With group loans, everyone in the group needs to have a business for 6 months already,

How does the group loan work? -how do the groups form?

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-what is the repayment rate?

a group has a minimum of 10 and a maximum of 30 lenders, which is called a community bank and consists of 6 ‘solidarity’ groups of 5 people.

A credit officer asks about all the lenders’ expenses and income in the past and future, all based on trust.

The lender has to live in a community where he is accepted in a group that knows each other very well.

MedNet goes into a village to find people that want loans, check the demand.

Then the people that would want a loan need recommendation from the local council, which is a gov’t institution, so in case of default they can help get the money back. Once the group has formed they register at the district/county as a community based organization which gives the group legal credibility.

When the group applies for the loan they fill in the application and take it to the local council who endorses it with a stamp.

When anyone in the group defaults, the solidarity group of 5 is responsible for repaying the default, if they cannot, the other groups of 5 (with maximum of 30) are all responsible for paying it back, if they cannot pay it, they go to the local council to take possession of the defaulter’s assets if he has any. (peer pressure) therefore assessment and appraisel are very important.

Progressive loan amounts are used, after good conduct, paying installments for 16 weeks, they can get another loan. Rural loans are paid monthly (to keep administration costs down) for 6 months; urban loans are paid weekly for 4 months.

The whole group gets ONE loan and divide this.

The whole group also pools some savings to be able to pay for defaults.

-What is the repayment rate?

An individual loan requires a current account so they can check historical bank statements, collateral, sale records, overview of house bills and a guarantee (someone that is their guarantee).

What is your maximum loan/lease amount?

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35

exceeds 20% of their portfolio, for group loans the minimum is 100.000 and the max. is 999.999 (from 1 mln its individual).

There is no way of knowing if anyone has gotten loans at other MFIs and this happens a lot, and MFIs that put most pressure on their lenders get their money back first, so it is important not to be lenient.

Microsave cd (market research toolkit) First, market research:

-poverty assessment

-Check what financial services are already provided -what activities are locals involved in (agriculture etc,..) -talk to district officials and then set up office

Ask locals in the community what the seasonality is like, product attributes, financial trends, coping mechanisms, how do they cope with life, what happens if the rains/yields are not good enough, do they have any backup? (i.e. ROSCA, village bank)

ROSCA = Munno Mukabi – luganda for ‘friend in need’

60% has to be women, they have the biggest impact in the household, they spend it to schoolfees, sick kids etc,..

No preference

What do you do in case someone can’t pay its loan / gets ill / dies?

Micro insurance covers death/disability, this is outsourced to AIG. 1% of the loan is withheld, of which 0,5% goes to AIG and 0,5% is revenue.

How do you establish your interest rates?

High interest rates are mainly due to the high monitoring and administration costs, since they mostly serve the rural poor.

Repayments are collected at the weekly (urban) and monthly (rural) group meetings.

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36 GENERAL

Do you monitor the operations of the lender’s micro-business in any way? If you give out a loan, do you give training in bookkeeping etc. as well?

-what structural support do clients get after receiving the loan?

Training in bookkeeping and saving is offered, If the business is not growing MedNet also offers business counseling and makes sure they diversify etc,..

MedNet is seen by the population as part of World Vision which offers schoolfees and basically hands out money, so the problem is they offer loans that have to pay back while people associate them with world vision = free stuff.

-That they’ve been able to penetrate rural areas

-They’ve been able to integrate their financial services with World Vision’s ADP

Not negative for community, negative inten: Fraud, stealing money on a recurring basis, they’re putting in a loan tracking system and rotating staff.

They check for inflation every month and MedNet provides for it, they have savings to cover it.

4 tiers:

Tier 1: commercial banks

Tier 2: Credit institutions (postbank) Tier 3: Deposit taking MFI’s

Tier 4: Non regulated MFI’s (MedNet is tier 4, but soon tier 3)

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Gov’t helped setting up the first two rural branches (paid for it) because they want MFI’s to go rural.

What is your main aim, outreach or sustainability? Outreach

1 2 3 4 5 6 7 8 9 10 Sustainability

1 2 3 4 5 6 7 8 9 10

FINAL

-Fraud

-Borrowing from more MFI’s and then default

Define your target group, ask if we want to build a bakery, who can we work with in this area? And where?

Make clear it is not a grant but a loan that has to be paid back.

Can I get your email for possible future questions?

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INTERVIEW X: STROMME

INTRODUCTION

Stromme had a passion to help the poor founded on christian principles, from all contributors a fund was created. Now also in Sudan and Rwanda and still spreading. How are you different from other MFI’s in kampala?

Money comes from norwegian gvt through NORAD (gvt NGO)

Could I get an annual report before I leave (so I can skip the financial questions?)

LEASING

What are the main advantages of leasing over lending?

- Leasing is differently organized to serve small enterprises. Lending tailored to the needs of industries, i.e. longer period.

- Reducing the risk of diverting money.

What % down payment do you require with each lease?

Down payment is mostly 25% to keep them comitted to the cause, they don’t want to lose that.

LOANS

-How do you screen your applicants?

No credit reference bureau, central bank is setting that up now, from next year for banks. -can’t cross check

- No national id system

- No central system for checking default

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Microleasing in Uganda? ‘A program design of the supply side of Microfinance’ 39 - Feasibility study - Market survey - Economic viability - infrastructure - security

Do you prefer loaning to women or minorities?

Women tend to have better repayment rates and are more focused on income generating acticities and use it for family.

Do you give any preference to certain projects to loan to? (education etc,..)

As a financial institution you need a preference/bias towards a certain industry. Identify reliable business, this is a criteria to keep your portfolio clean, not too much in one area though.

What is your maximum loan/lease amount?

Individual loans are mostly for individuals with collateral. How does the group loan work?

- Group loans are for people that have absolutely nothing, you give them smaller loan amounts.

- Have to keep the group loans independent, ie. not a communal oven or cooker, but 5 ovens or 5 cookers, to keep all of them comitted.

-Set limits in group loans, for instance as soon as someone reaches a ceiling you can go for an individual loan and replace the person in the group.

- Progressive loans, more big loans require less monitoring, so you’re cutting costs on the long term.

- Cross-subsidize

What do you do in case someone can’t pay its loan / gets ill / dies? You need insurance - outsource

How do you establish your interest rates? Interest rate setting is a discipline

Interest rate = expenditures + inflation rate + margin + mngmnt fees (level of risk)

You don’t have to charge what other MFI’s are charging because your laons are different.

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40 How do you collect your repayments?

Depending on your methodology you either go to the lenders to get repayments or they come to you. For groups it is better to go there every now and then.

If you give out a loan, do you give training in bookkeeping etc. as well? -what structural support do clients get after receiving the loan? Do you monitor the operations of the lender’s micro-business in any way? You should monitor after giving the loan.

Positive effect is the impact of reduction of poverty through the access of financial products and creating employment when businesses grow.

Negative effect is default, to take collateral from poor people

AMFIU ensures that whoever is a member conforms to best practices. What are the most important government regulations you have to adhere to?

Gvt has a policy/direction/framework of creating an enabling environment for microfinance and even gives funds.

Are there any securities offered by the government towards you or MFI’s in general? To get funds from the government, go to the research dept. of the centralbank. OUTREACH - SUSTAINABILITY

Outreach .

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Sustainability .

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41 FINAL

Weak institutions, not adhering to best practices. (best practices AMFIU)

- It might be better to improve existing bakeries to have them reach better production levels, check the needs of these existing bakeries and that your product is designed specifically to meet bakery needs.

-Mukono, Mbarara and Masaka might be good ideas. - Structure your loans and set criteria.

- Structure a package for starters, comitted people that have no money, train them first for 2 months (capacity building) then give them a small startup loan, not only find a market, but create one as well, this makes it sustainable with growing demand, the business will be growing.

- Get a small association started and make people that have small businesses already (ie baking cookies at home) members, and train them in managing their institutions and expand and monitor them.

- Training gives the competitive edge offer more than a loan, improve the quality of the whole bakery industry.

Register yourself as company, get criteria, policies, rules and regulations and then operationalise.

- FORM AN ASSOCIATION.

You need to understand where people already get their money, or if they have an association already, which would be better. Don’t work with them as individuals, but make them members of an association.

Create a level of partnership, mobilize them, sit with them and enforce your good practices.

Association of bakers, so they work together.

Uganda is the first African country with microfinance laws (MDI laws) Uganda and Egypt are the only African countries with databanks

Uganda is very transparent in using funds, money gets to the right place, it does not end up in the wrong pockets. (YET!)

MicroLeasing in Uganda ?

MicroLeasing in Uganda ?

*** CHAPTER 9. APPENDICES ***

* CHAPTER 9. APPENDICES *