Commercial banks, Microfinance institutions and smaller money lenders are swarming schools and other educational institutions in search of new customers for loans to clear tuition and procure educational materials, among others, as the education sector reopens.
The competition for new customers by the lenders coincides with the fact that many parents would like to take their children back to school, but are constrained financially. The financial sector is also targeting school proprietors and suppliers, who now need instant cash to get their businesses up.
Many lending institutions are offering discounted interest rates, easy security for loans and simplified processing for getting the money, among other incentives.
The Ministry of Education and Sports says some regulated financial institutions approached them with proposals of financial solutions for schools, parents and suppliers and the financing models have been agreed on.
Dr Kedrace Turyageynda, the Director of Education Standards at the ministry says there is a cycle of financial constraint with the cash-strapped schools only having hope in parents, yet the parents are also constrained. She says the other option would be relying on the government, yet the government resources are also impacted by the pandemic. She, therefore, says the moves by the banking industry comes as a relief to all players.
The government and the education sector also secured relief positions where schools would be given a waiver of loan interest accumulated in 2021.
Stanbic Bank Uganda Chief Executive Anne Juuko says they decided to give interest rate cuts to education-related loans to 16 per cent but says that unsecured loans will attract a higher interest of 19 per cent. For the period to January 31, 2022, the bank will charge no loan arrangement fees, while a loan can be secured within two minutes for parents who already have accounts with the bank.
“The COVID-19 pandemic has left us with an unprecedented challenge; our schools have been closed and teachers have been out of work for two years, many parents and guardians also had their livelihoods interrupted as a result of loss of jobs or business,” she says.
Teachers have also been given special consideration on the salary loans they acquire, due to the fact that many, especially in private schools have not been paid salary for two years. Other offers will include access to communication gadgets like laptops for students on credit, as more learning institutions are requiring students to have either laptops or smart mobile phones.
She says unfortunately, that the loans that the schools already have must be paid back, though interest has been waived.
According to the Uganda Bankers Association, school proprietors owe the banking sector, more than 1.5 trillion Shillings, on top of accumulated interest of about 500 billion Shillings. To protect the banks from liquidity crises, the Bank of Uganda will not push for the writing off of the debts.
Mustapha Nanfumba, the Managing Director of Mpigi Mixed Secondary School, one of the schools, whose loan repayment program was affected by the lockdown says that the decision to waive the interest and lower interest on future loans is welcome because it will boost the education sector.
He says that unfortunately for suppliers, the schools were closed before they could collect enough money to pay for the suppliers that are usually on credit.
But aware that parents and investors are likely to fall prey to unscrupulous people, Absa Bank Uganda has warned intending borrowers to beware of this so as not to lose the little they still have. The bank is offering a two-month repayment holiday on salary loans to customers, promising what they call ‘competitive interest rates, for sums between 1 million and 250 million Shillings.
“The pandemic has created economic pressures sending many into financial distress. With the impending school reopening, we are aware that parents will face challenges meeting school fees obligations,” says Musa Jallow, the Director, Retail Banking at Absa Bank Uganda.
And on their part, the Uganda Registration Services Bureau, URSB, reminds parents with limited property ownership or no formal employment, that movable properties can now be accepted as collateral.
“Phones, furniture, agriculture stocks like animals, household properties are now widely accepted as a form of collateral that the financial sector, especially banks, have for long ignored.
Following the enactment of the Security Interest in Mobile Property Registry System Act, interested Ugandans should register such properties with the URSB, which can then be presented as collateral at banks,” says Mercy Kainobwisho, the Registrar General.
In the last few months, the banking sector has seen credit growth in both demands by borrowers and supply by the lenders as the economy pick up. The education sector’s participation in the market was almost nil as there were no activities to warrant borrowing, according to the Bank of Uganda.
The annual rate of growth of lending to the personal and household sector, where salary loans fall, was reduced to 18.4 per cent in the four months to October 2021, up from a growth of 19.5 per cent at the end of June.
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