Access to capital is one of the most significant contributors to business growth in any economy. With a good business plan and access to capital, most businesses can thrive. However, it is usually the case that not everyone who has a viable business plan has access to personal capital or can even borrow it. Loan accessibility is still a challenge in Uganda. With jobs at an all-time low, many are making an effort to employ themselves – making access to capital more necessary.

Drawing from two popular banks in Uganda, let’s look at some of the requirements needed by different banks to access their loan schemes. With Equity bank, the interested person must be an employed salary earner to access three of their four loan schemes. While this is reasonable for the bank, this requirement disqualifies the majority of interested parties. Additionally, the interested candidate must secure the loan with assets of higher value than the loan. Proof of regular income is a non-negotiable requirement for Stanbic bank's ‘affordable’ loans.

"Studies show that the majority of Ugandan trained doctors work abroad because of the meagre and often delayed payment, lack of adequate working equipment exacerbated by long working hours."

The above requirements are not entirely insufficient because bank loans require loan guarantors. Loan guarantors stand in as witnesses assuring the bank that they would shoulder the burden if the borrower cannot repay the loan. This usually happens when banks are already satisfied or confident in the borrower’s credit score. The problem arises when people who are viable as loan guarantors refuse to participate.

In addition to these drawbacks, the interest rates Ugandan banks charge are highly exorbitant, hovering at around 20% per annum. This makes it hard for businesses with a low profit margin to manage comfortably. It is clear from the above examples that to acquire loans from any bank in Uganda, several requirements must first be met. These requirements revolve around the security provided by a borrower to assure the bank that the loan will be paid in full and promptly.

Many desperate people have turned to money lenders who have fewer requirements to attract more people to borrow from them. However, these money lenders usually charge even higher interest rates than banks. But they avail funds faster than banks which makes them favorable to use. Their biggest flaw is being exploitative and ruthless towards their usually desperate and naive customers through unfair payment terms.

Many people have turned away from banks and money lenders to saving groups to cope with these difficulties. Saving groups have become the backbone for people struggling to build wealth. Saving groups make decisions according to their governing principles, which allows for flexibility. They usually have a varying number of members as they please. Some saving groups save a minimum of 5,000 shillings every day. This money accumulates over time when saved consistently. These savings enable members to invest in their desired projects. Another plus that comes with saving groups is boosting the loan viability on a joint basis as a group. This is attributed to the bigger sums of money these saving groups can accumulate, making them stable enough to acquire a loan from a big institution, more so when the saving group has been in action for years.

The local initiative of saving groups has been very helpful for those who previously weren’t viable for bank loans. This initiative comes with its challenges too, such as poor record-keeping, which makes proper accountability difficult, unscrupulous treasurers who greedily encroach on saving group accounts, and the lack of guidance on good money-generating business ideas for expanding the group’s income.

With the above information in mind, it is evident that increasing loan accessibility in Uganda is still work in progress. The facilities to avail funds may be available, but they mostly favor the people who already have the primary requirements of proof for regular income source, guarantor, and collateral. The saving groups have been the best serving platform, but they need a lot of guidance to maximize their opportunities and strengths. Guidance can be provided through free specialized training from civil society and the government. Local saving groups can be a great source of capital for new entrepreneurs if well boosted and, in the long run, can combat unemployment.