Businessman’s loan saga exposes Uganda’s credit challenges

A Ugandan businessman’s struggle to secure a fair loan valuation has shed light on the barriers to accessing affordable credit in the country.

The businessman, who requested anonymity, approached a major commercial bank for a loan, offering four rental houses in Namugongo as collateral.

Despite the properties generating Shs 4 million monthly in rental income, the bank’s valuer estimated their worth at just Shs 120 million.

“I was shocked by the valuation,” he said. “The houses earn Shs 48 million annually. How can they be valued so low?”

This case underscores the difficulties borrowers face with regulated lenders, often forcing them toward informal moneylenders who charge high interest rates.

Denis Jjuuko, a communications consultant, pointed to the prevalence of unregulated lenders like Mangu Cash as evidence of gaps in Uganda’s credit market. “If regulated institutions made borrowing straightforward, the likes of Mangu Cash wouldn’t thrive,” Jjuuko noted.

While the government recently capped interest rates for informal lenders at 2.8% per month, experts argue this measure doesn’t address systemic issues.

“High interest rates, even from regulated lenders, stifle sustainable growth,” Jjuuko emphasized.

The deputy speaker of parliament, recently threatened by a representative of Mangu Cash over an unpaid loan, has pledged to take action. However, Jjuuko stressed the need for a broader strategy.

“The deputy speaker must focus on creating an ecosystem where credit is affordable and accessible to the majority of Ugandans,” he said.

The incident highlights the urgent need for reforms to make credit both fair and accessible in Uganda’s financial sector.