Borrowing becomes routine in Uganda

In Uganda, borrowing has increasingly become a routine financial practice for individuals, businesses, and the government alike.

This trend reflects the country’s growing economy and the need for access to funds to fuel various activities, ranging from personal investments to infrastructure development projects.

For many individuals, borrowing is often necessary to finance significant expenses such as education, housing, or healthcare.

According to the Uganda Bureau of Statistics (UBOS), the demand for personal loans has been steadily increasing, indicating that more Ugandans are turning to borrowing to meet their financial needs. This could be attributed to rising living costs and aspirations for higher education and better living standards.

Businesses in Uganda also heavily rely on borrowing to finance operations, expansion, and investment in new ventures.

The Uganda Investment Authority (UIA) reports that, “loans are a vital source of capital for businesses across various sectors, from agriculture to manufacturing to services. Entrepreneurs often seek loans to purchase equipment, acquire inventory, or scale up their operations, recognizing borrowing as a means to fuel growth and competitiveness.”

Professor Augustus Nuwagaba an economist and an international consultant on economic transformation, explains that some people hold that borrowing is an undesirable undertaking, to the extreme others have contended that it is a “curse” that should be avoided at all means.

He added that it is important to note that borrowing is a normal undertaking whether by individuals or business enterprises, saying that many find themselves in need of borrowing.

However, as much as borrowing is an inevitable phenomenon, it should be undertaken when absolutely necessary.

“It is against this premise that those intending to borrow must understand why do you need to borrow? It is important that if you indeed have to borrow, the reason for borrowing must be viable. In economics terms, borrowing must be for a productive investment, an undertaking that aims at generating income in future.” He said.

According to Nuwagaba, there are a number of sources of money from where one can borrow. However, one fundamental principle of borrowing is to understand the cost of borrowing.

He said, “The success of a business enterprise is a function of the cost of doing business, and one critical element of the latter is the cost of borrowing. This comprises the interest rates charged by the different financial institutions”

Furthermore, the Ugandan government frequently engages in borrowing to fund critical infrastructure projects, such as roads, bridges, and energy facilities. The Ministry of Finance, Planning, and Economic Development regularly issues government bonds and seeks external loans to finance these projects, aiming to stimulate economic growth and improve the country’s infrastructure.

While borrowing is essential for economic development and personal advancement, experts emphasize the importance of prudent borrowing practices. Excessive debt levels can strain individuals, businesses, and the economy as a whole.

According to the Bank of Uganda, maintaining a sustainable debt burden is crucial to ensure financial stability and avoid debt distress.