In the morning, we went to see Reach Out Mbuya to learn about microfinancing. The way Reach Out provided microfinancing is through VSL groups.
In the first session everyone in the group meets everyone else and learn the qualities of a good member.
In e second session the groups learns the VSLA concepts, savings, loans, welfare and interest. Interest on the loans ranges from 5-20%/month.
In the third session, the management commission is elected. There are 9 positions on these committees: A chair person, Secretary, Treasurer, Welfare Fund Treasurer, 2 Money Counters, 3 Key Keepers. Each key keeper has a key to a separate lock, and all three are needed to open the locked money box held by the treasurer.
In the fourth session, the group decides how to handle loan repayments, fines, and each member gas to choose a next of kin in case they die
In the fifth session, the group creates a loan ledger, a fines ledger, a savings ledger, and a cash balance sheet.
In the sixth session, the members discuss the meeting procedures.
In the seventh session, the VSLA group goes over how conflicts and other issues will be resolved.
In the eight session, they discuss how the group will be audited.
VSLA groups meet once a week and follow the same procedure every time. The meetings start out with a role call. Most groups have fines for being late and being absent. After role call, every member makes a contribution to the welfare fund, which can be around 500 shillings. The welfare fund can be distributed two ways, as a grant or as an interest free loan. Grants are not to be paid back, and interest free loans only have the principal amount repaid. After collecting the weekly contributions, the VSLA group moves onto collecting the welfare repayments. Then members who would like to receive welfare must ask and explain their situations. Members vote to decide if they get it or not. Members must receive over half the votes.
The next step in the meetings is to collect everyone's savings contributions. Members can save as much as they want, but the amount received t the end of the period is based on how much is contributed.
After that, the group collects the outstanding loan payments. A member can borrow up to three times what he or she has saved up. Loans must be repaid with interest at the end of the month. However, the same amount can be reborrowed for another month as long as it is approved by the rest of the group. After the loan repayments, members can ask for loans and the rest of the group votes on it. Then the meeting is concluded.
Interest rates for these loans are per month, so 5% interest each month is equivalent to about 80% each year. Banks in Uganda offer loans at below 20% but people are still willing to take out microfinance loans. That must be because the banks will not approve loans for these people. These people are extremely high risk which is why their interest rates are so high.
Do you think microfinancing is sustainable? Do you think it helps move Uganda towards being more sustainable even with these high interest rates?