Report 2 (of 5): A Good Return - Uganda

Introduction

Since 1992, the European Development Fund (EDF) has supported small scale enterprise by providing people with credit in the form of investment capital for the equipment needed to expand their businesses. The European Development Fund’s micro-projects scheme is now reaching some of the most disadvantaged Ugandans through grants to build infrastructure in rural communities where development was hampered by the protracted civil war. It is also giving loans to individuals to start up businesses ranging from metal working to mushroom growing. It offers credit facilities to those who cannot meet the terms and high interest rates of commercial banks. The scheme now extends to six regions country wide.

The Micro Projects Programme

The Micro Projects Programme aims to provide facilities that will enable marginalised communities to increase their incomes, develop capacities and attain improved wealth. The programme also strives to improve the living and working conditions of the rural and urban poor through both financial and non-financial services.

Infrastructure Development

The Micro Projects Programme aims to improve social infrastructure facilities by working with the communities in the rehabilitation and construction of buildings in schools (secondary eduction), health centres, agricultural produce stores and public convenience facilities. Water supply schemes will be improved to ensure the provision of clean and safe water, and feeder roads will be repaired.

The development of infrastructure is a project that encourages participatory development with the local workforce providing the labour and some of the building materials. The beneficiary community typically meets around 25 per cent of the total project costs.

Income Generation

The Micro Projects Programme provides credit for micro and small scale investment in agriculture, afforestation, animal husbandry, agro-processing, domestic and small scale industry, for example, horticulture, fruit growing, agro-forestry, zero grazing, poultry, bullock rearing, food processing, carpentry, metal fabrication, electronics and mechanics, tailoring, knitting, printing, tourism and leather works. The Programme also helps to create opportunities for marketing, networking and training.

Non-Financial Services

The Micro Projects Programme offers training to entrepreneurs and would be entrepreneurs in technical skills and business development skills. The training covers areas such as entrepreneurship development, book keeping, zero grazing, bullock rearing, poultry farming and food processing. It also offers the transfer of technology facilities, such as jam making and organic farming, and capacity building to institutions that render support to the small scale entrepreneur.

The Vetting of Loan Applicants

Local area management teams identify loan possibilities and are responsible for the close monitoring of the scheme. The scheme positively encourages women to apply. All the loan applicants are thoroughly vetted. Their skills and past experience are considered, as well as the sustainability of the project. Aspects such as market access, job creation, availability of inputs and the income generating potential are also considered. A project must be economically and socially viable before a loan is granted.

The loans tend to be soft loans repayable over a period of three years at 9.75 per cent interest. These rates are much more affordable than commercial banks which typically offer a six month loan at 23 per cent interest.

Financial Services

Credit is given either directly to the individuals or indirectly through financial intermediaries - an idea generated by the Grameen Bank in Bangladesh. In this case, the Micro Projects Programme provides credit facilities to Micro Finance Institutions which are involved in collecting savings from, and delivering credit to, Micro Projects Programme target groups. The purpose of this facility is to support sustainable financial institutions which give short term financing to boost economic activities of the marginalised urban and rural poor.

Promotion of Rural Initiatives and Development Enterprises (PRIDE)

One of the local financial bodies that the European Development Fund lends money to is PRIDE (Promotion of Rural Initiatives and Development Enterprises). Pride then lends the money on to small investors, in particular to women who lack the formal eduction to approach banks for loans. There are now 15 branches of Pride operating throughout Uganda, including 6 in rural areas.

Traders in the Owino market in Kampala have been able to expand their range of produce with small loans from Pride. The facility does not involve direct lending to individuals but instead traders have to club together in groups of about five to secure the loan. These groups are part of a wider circle of about fifty traders who all share similar businesses. Members of each group of five go to the Pride office, in the market, at a given time each week to make the loan repayments.

The system depends upon collective responsibility for the loans. If a trader defaults on repayments one week, then it is up to his colleagues in the group to come up with the funds. If a whole five member group cannot make the repayments then the market enterprise committee representing the fifty traders is consulted.

The traders, as beneficiaries of the scheme, are expected to save money with Pride as a ‘loan insurance fund’. Pride’s interest rates are higher than those obtained directly from the Micro Projects Programme but about 15 per cent of the traders at the Owino market have accessed loans through Pride.

Outcomes

• Credit to marginalised communities who would not usually have access to credit from formal financial institutions.
• Increase of incomes and improved welfare through the improvement of health, and improved housing and diet.
• Numerous jobs have been created due to new projects in rural and urban areas, and existing businesses have expanded and, as a result, have employed more staff.
• Business capacities have been developed in marginalised communities.

The projects are boosting people’s earnings, providing jobs, fostering personal pride and fuelling ambitions to go onto bigger things.

Intermediate Technology would like to thank the European Development Fund for providing the original material on the Micro Projects Programme.

Further reading available from ITDG Development Bookshop

Cloning Grameen Bank: Replicating a poverty reduction model in India, Nepal and Vietnam
Edited by Helen Todd
Inspired by the enormous success of the Grameen Bank in providing financial assistance to the poorest of the poor, four individuals - a central banker, an appropriate technology NGO organizer, a professor of international relations and a top-level communist official - each sought to replicate and adapt the model elsewhere in Asia. By giving an unvarnished account of the problems encountered in the crucial first years of establishing a credit programme, the book alerts potential micro credit practitioners to the pitfalls and obstacles likely to be encountered in setting up a programme. The book provides the opportunity to analyse the process of creating a successful credit programme and draws some lessons in best practice from the experience of these four projects.
£9.95, (ITP), 1996, ISBN 1 85339 390 8

Finance Against Poverty Volume 1
David Hulme and Paul Mosley
This book examines the theory that people can improve their living standards by becoming micro-entrepreneurs and that financial institutions should support their initiative with small loans. Offering an in-depth analysis of the theory as well as policy recommendations for practitioners in the field, Volume 1 and Volume 2 are comprehensive studies of micro-finance to date.
Volume 1 £16.99, (Routledge), 1996, ISBN 0 415 12429 8
Volume 2 £19.99, (Routledge), 1996, ISBN 0 415 12431 X

Micro-Credit: Impact, Targeting and Sustainability (IDS Bulletin Vol 29 No 4)
£10.95, (IDS), 1998

Micro Finance and Poverty Reduction
Susan Johnson and Ben Rogaly
The provision of credit and other financial services has become increasingly seen as the answer to the problems facing poor people. This book considers various types of Micro finance schemes and compares the effectiveness of different approaches in aiding poverty reduction.
£8.95, (Oxfam), 1997, ISBN 0 85598 369 8

Money-go-rounds: The importance of rotating savings and credit associations for women
Edited by Shirly Ardener and Sandra Burman
£14.99, (Berg), 1995, ISBN 1 85973 170 8

The New World of Micro Enterprise Finance: Building healthy financial institutions for the poor
Edited by Maria Otero and Elisabeth Rhyne
Argues that it is possible to create sustainable and viable financial institutions that give poor people greater access to financial services. Includes case studies of successful programmes from Asia, Africa and Latin America.
£17.50, (ITP), 1994, ISBN 1 85339 247 2

Our Money, Our Movement: Building a poor people's credit union
Alana Albee and Nandasiri Gamage
Credit and savings mechanisms are increasingly becoming a powerful tool in development, but many initiatives are only now aiming for the ownership of these mechanisms to be in the hands of the borrowers themselves. Our Money, Our Movement describes how this goal has already been reached by the Women's Credit Union in Sri Lanka. It challenges the more conventional 'delivery' approach to development by illustrating how financial services can be controlled and managed by the poor, rather than delivered to them, an approach which has long been a fundamental tenet of the credit union movement. This is essential and inspiring reading for development agency staff, and others either interested in people's movements or involved in credit and savings initiatives.
£7.95, (ITP), 1996, ISBN 1 85339 388 6

Profit for the Poor: Cases in micro-finance
Malcolm Harper
Micro-credit is the latest development fashion, and it has even received the ultimate accolade of a 'world summit'. It is not generally appreciated, however, that there is a wide variety of quite different approaches to the profitable delivery of financial services to the poor. Such services are being and, indeed, have for many years been provided by many different types of institutions, including traditional commercial banks, NGOs and the much publicized 'new generation' institutions.
This book contains a selection of case studies from India, Bangladesh, East and Southern Africa, Indonesia and Latin America, together with many challenging comments and questions. Two points are made: first that there is no universally applicable methodology in the field, and second, that well-managed micro-finance can be profitable both for its customers and its providers; it is a business opportunity itself for bankers, and need not depend on donor assistance.
£12.95, (ITP), 1998, ISBN 1 85339 438 6

Who Needs Credit? Poverty and finance in Bangladesh
Edited by Geoffrey D.Wood and Iffath A.Sharif
Micro-credit, the loan of small sums to people excluded from normal banking processes, has emerged in recent years as an important and growing issue in Development Policy. Combining the work of both academics and NGO practitioners, Who Needs Credit? argues that there are very real dangers involved in uncritically adopting micro-credit strategies as a universal and cheap panacea for poverty. While centred on the experience of Bangladesh, it brings forward questions that arise for any NGO in any country that attempts to repeat the Bangladeshi experiment.
£16.95, (Zed Books), 1997, ISBN 1 85649 524 8

TVE/ Practical Action gratefully acknowledge support for the HANDS ON programmes from the UK's Department for International Development (DFID), the European Commission (EC), the UN Foundation and UNDP/The Equator Initiative in collaboration with the Government of Canada, IDRC, IUCN, BrasilConnects and the Nature Conservancy.