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Thursday, June 3, 2010

Opportunity Uganda

On Monday we had the opportunity to visit Opportunity Uganda. To explore what Opportunity Uganda does for its customers, we split up into small groups of 5-6. Each group was paired up with one of the agents from Opportunity Uganda and we went to their branch. Driving to the branch, I took notice of what the surrounding area looked like. The area we drove through had many small shops set up on the side of the road. Most shops were small and only had one room with merchandise all over the walls and tables.

After a twenty minute drive, we arrived at the branch. The front looked like a nice business that had a front entry, but we did not go in the front door, instead we walked around back to where most of the business takes place. There was a courtyard common area surrounded by buildings. We sat in the middle under a tent where we were first introduced to what microfinance entails.

Microfinance is lending that is given to groups of small business owners so they can raise more capital. The specific group I visited had 18 people in the group with 12 active loans out. The loan amounts ranged from 200,000 Ugandan Schillings to 800,000 Ugandan Schillings, which is from $100 to $400. The reason there are more people in the group than loans is because some people do not have current loans out, but are still part of the group because they may need to lend again.

To become a member of the group, one must give collateral, which can be a household item like a TV, radio, or pots and pans if they are in the restaurant industry. The reason for collateral is it shows the group that they have a vested interest in the group. One perk of the group is that if one of the members misses a payment or defaults on his or her loan, then the rest of the group covers for that member until the member is able to pay back the money. This can be a good thing for the member that cannot make the payments, but it can be a bad thing for the group and puts the rest of the group in a situation they may not wish to be in.

The loans work in a way that the person has to be invited into the group by the group leader, however the person must already have an existing business, and then to be accepted into the group he or she has to put their collateral down. Then you apply for the loan amount you would like to receive. Once the loan is received, the person has on Monday before they must start making loan payments. The first loan received is for six months with the person making weekly payments. Then at six months, the person can take out a second loan for nine months and then a third loan can be taken out for twelve months. A member can have more than one loan out at a time.

When we visited Opportunity Uganda, we went out into the community and attended a weekly group meeting. At group meetings, the head of the group leads the meeting and they talk about different issues that may arise and they also collect the weekly payments. The group has a variety of business owners including a shoe salesman, a canteen owner, second hand clothes dealer, carpenters, and a phone accessories dealer. All the different business owners know each other which is essential in the group setting because honesty and integrity are the main tests to see if the person will be granted a second loan.

According to the group, microfinance has some positive advantages. One major benefit to the group members are the weekly payments. The members said that they prefer the weekly payments because it makes them think about budgeting their money and then their minds are always set on the next weekly payment. It was also mentioned that group loans can help people raise enough capital for their businesses that they would not otherwise be able to receive.

However, there are some negatives to microfinance. One main problem is the timeliness of the loans, many of the business owners said that the loans are not received in a timely manner and because of this problem, they lose business. This is partially because the people are in a group setting and things have to abide by the group standards, but if people take loans out from a larger bank, then they can receive the funds when they need it and they are not tied down to the group and they can also receive loans at different time increments. Another problem is the fact that many of the group members are illiterate, so they are not able to read and understand handouts that are given to them regarding their loans. Then microfinance loans are not for start up businesses, so if a person would like to start up a business, they cannot receive any funds from microfinance until they have an established business.

How did your experience compare to what was described?

Do you agree or disagree with the positives and negatives to microfinance? Do you have any more to add?


  1. I had a really good experience with opportunity international. We were able to talk with a loan group and ask them questions about their experience. One person said they chose to get a loan from opportunity international because it had an educational program. I thought that the educational session was a good t concept since it trains people how to use money, record keeping, and they teach them about the interest rate. The training helps to ensure that people will pay back their loans on time and helps people to manage their money more efficiently.

  2. My group had a pretty similar experience. I was expecting us to head to an office building or at least a store; instead, we were sitting outside in a little alley between some buildings. They pulled up some benches and we sat down in front of a group of about 7 women and one man (the representative from Opportunity Uganda that comes to each meeting to collect money). Then we all just looked at each other awkwardly for awhile; I guess none of us knew really what was supposed to happen. I was expecting some sort of introduction from there and then question time but they were expecting us to just jump in with questions. Once we figured out that we were supposed to talk first, the first question was asked by a MUBS student. In her question, she mentioned what she thought was the title of the group: "Mothers Group."

    She said this because when she was growing up, the people that were in groups like this were all mothers with stores but now that is very different. It's so different now that the only woman in the group that spoke English got offended and almost walked away from the group! But the MUBS student apologized and explained her logic so it was all worked out in the end. After the rocky start though, we got to ask tons of questions and got lots of information about the logistics of the group and about Opportunity International.

    One of the most controversial issues was mentioned a little by Susan. No one can get loans until they have been in business for at least 6 months. Why is that bad? Well, its tough to start a business without money so that will hinder entrepreneurship. However, the default rate of start-up companies is roughly 80%, whereas the rate on already existing companies is more like 10% (this is a very rough guesstimate given reluctantly by the Opportunity Uganda representative) so I can understand this rule.

  3. The biggest question I have is what kind of internal default rates are present in the group loans. Overall, Opportunity International has a default rate of around 3%, but what about the groups? If a member of a group loan does not have the funds for a particular installment, other members of the group cover for that person. I would be interested to see how often this happens and what implications this presents for groups.

    Another interesting aspect of the group loans was that they often had members whose businesses competed against each other. The group I visited had three hair salon owners, and I wonder if taking a loan together causes any problems in their business competition.