Are we choking up on loans?
Acquiring a loan from a financial institution is no easy feat. It gets harder if one is getting the loan as an individual or a small business enterprise. The requirements are many and beyond the reach of most citizens and the process itself is tedious
In some occasions, it takes months to process a loan. Over the past year or so, that has changed with the advent of alternative loan platforms that provide credit services to individuals and small businesses. One can now access cash for emergencies or working capital for their business without the worry of meeting the stringent conditions set by conventional credit providers.
Alternative credit services are not entirely new, shrewd individuals with cash to spare set up shops and providing quick loans to people in their neighborhood. All one needs to do is to provide security which can range from house hold items like Television Sets, to Cars, Land tittles and more, depending on the loan amount. These loan sharks are notorious for exorbitantly high interest rates and lender leaning terms and conditions.
Many that get these loans end up losing their security. These shacks are also notorious for using crude and sometimes violent methods to get back their money. Since they do not report to any financial regulatory authority, they get away with all their misdeeds.
In recent times, introduction of mobile money loans by MTN Uganda and Airtel Uganda have come in as a cheap and fast alternative to loan sharks and bank loans. One can easily access credit at very convenient rates, without much paper work. It’s been made so easy that all you need to do is to dial on your handsets. The conveniences of these loaning platforms have grown over the last 24 months and has since seen telecommunication companies grow into financial institutions offering both banking and non banking services
In August 2016, Commercial Bank of Africa (CBA) formed a partnership with MTN that led to the birth of MoKash, a loans and savings platform. CBA was able release over UGX 30 billion in form of loans to MTN subscribers in the first six months.
The popularity on these mobile money loans have prompted banks to scale down as much as possible with new packages in order to get a slice of this pie in this uprising new wave of mobile based financial services. Centenary Bank was the first to come up with one, CenteMobile. A platform where customers can access emergency credit from as low as UGX. 5,000 up to a maximum of UGX. 2 million. Its presumed more banks will join in the coming months with the introduction of Agency Banking, a platform that is very identical to the mobile money platform in both product strategy and client delivery
There is a new generation of credit facilities in form of tech start-ups. Start ups like Numida that only require one to enter their daily financial records into an app that then calculates the amount of money you can access in form of credit. All you have to do is download the app, submit your personal identification and business documents (certificate of incorporation and trading license), enter daily transactions for a week and you qualify for a loan. To make things even simpler, the funds are disbursed to your mobile money account within a period of 24 hours. This is a sigh of relief for those locked out by the conventional credit system. Majority of the population is engaged in the informal sector which makes it difficult for this chuck of the population to access loan facilities that require security, guarantees and have tons of complex paperwork to process. Not to be left out, traditional banking institutions are also providing similar products. Centenary bank Uganda has a similar product
Numida aims to grow small businesses with affordable, convenient, and fair credit. It also promotes documentation and accountability which are very essential for business development.
With all their advantages, these many loan platforms can bring about the predicament digging oneself into a debt trap. With wages still low and living standards increasing by the day, many people are forced to get loans to cater for personal needs such as rent and food instead of investing the loan funds into an income generating activity. When the salary comes through at end of the month, you spend it all paying the previous loan before taking out another loan to keep you going for the rest of the month. With no savings, the living in debt cycle continues.
To get a loan should be for an activity that generates returns on investment. For those that borrow tomorrow sustain daily life, I recommend planning and living a life within their financial means because living in a debt trap is not pretty.