MICROCAPITAL STORY: Infamous Brother of Ugandan President Floods Microfinance Market with $133m of Subsidized Capital Over 5 Years

AllAfrica.com reported that Salim Saleh, the current Ugandan State Minister for Microfinance announced that the Government of Uganda (GoU) has set aside 262 billion shillings (or USD 133.7 million) to be delivered as subsidized low-interest loans through the Microfinance Support Center (MSC), to Savings and Credit Cooperative Societies (SACCO), to individuals and small businesses. MSC is a government owned limited liability company set up to aid in management of rural microfinance. The announcement was made at the launch of the MSC’s five-year strategic plan. “This company has 40 billion shillings (USD 20.4 million) for the next five months and it can loan out 9 billion shillings (USD 4.6 million) each month,” said Mr. Saleh. This budget is up from January when MSC Director, Mr. Mutebi Kityo announced that the company was prepared to loan out USD 3.5 million by February 10. Financial information is not available regarding MSC’s previous activities.

SACCOs are organizations that accept deposits and extend microloans to individuals and small businesses. Through the GoU’s economic develop project called “Prosperity for All,” launched in 2007, money is distributed through SACCOs to poor individuals.

Accompanying Mr. Saleh at the event was MSC chairperson, and former Vice President, Dr. Specioza Kazibwe. Dr. Kazibwe was cheered when she announced to the crowd that MSC will grant every SACCO a small USD 5100 interest-free loan that will be payable over a period of 24 months. MSC will further provide loans to SACCOs engaged in agriculture at an interest rate of 9 percent, who will then on loan to members at 13 percent. SACCOs engaged in other commercial activities receive loans from MSC at 13 percent, and charge a 17 percent interest rate to the end borrower. Dr. Kazibwe exclaimed that the 13 percent interest was still high and called on the GoU to lower it.

However, as reported by MicroCapital in July 2008, the new rates are well below the 20 to 30 percent rates usually charged by for-profit institutions. For example, in an interview, Vikram Akula, of Indian for-profit microfinance institution (MFI) Swayam Krishni Sangam (SKS), explained that despite the 25 percent interest charged by his organization, SKS only earns approximately 1 to 2 percent profit on each loan. How the 9 to 13 percent interest rates will affect the sustainability of the microfinance industry in Uganda was not addressed at the event.

Considering the fact that USD 133.7 million is in question, very little further financial information is available on the subsidy, or on the organization involved in distributing the loans, the Microfinance Support Centre Ltd. MSC does not have a website, but the website of the Ministry of Finance, Planning and Economic Development reveals that MSC was incorporated in 2001 as a limited liability company owned entirely by GoU. The Ministry’s website defines MSC’s objectives as to provide financial services to the economically active poor, and to build capacity of MFIs. The website further says that the company was established primarily to oversee the Rural Microfinance Support Project (RMSP), a five year project funded by African Development Bank (AfDB) and GoU. The goal of RMSP is to implement one aspect of Uganda’s Poverty Eradication Action Plan (PEAP), a document prepared for the International Monetary Fund (IMF), by promoting countrywide access to affordable microfinance services. MSC does not report to the MIX Market, the microfinance information clearing house.

Salim Saleh, Ugandan State Minister for Microfinance, is a former General of the Ugandan People’s Defense force, and brother to Ugandan Prime Minister Yoweri Museveni. While in the army Mr. Saleh set up a number of businesses, including ones in real estate and aviation, and subsequently became one of Uganda’s wealthiest businessmen. He has been mixed up in a variety of controversies. In 1998, he resigned from his post as presidential advisor following allegations that Greenland Investments, a company of which he was a major stakeholder, was involved in an illegal purchase of shares in what was then Uganda’s largest bank, the Uganda Commercial Bank. The same year, a company owned by Mr. Saleh purchased helicopters for the Ugandan army. Saleh made a commission of USD 800 thousand for the purchase, and the helicopters turned out to be junk. Furthermore, the UN Security Council has implicated Mr. Saleh specifically for the illegal exploitation of resources in the Congo (DRC) during the Second Congo War, however no actions have been taken. He was appointed State Minister for Microfinance after the general elections in 2006 by his older brother, who warned Mr. Saleh publicly that he should “be close to the law” and not “get into new problems.”

At the announcement of the loan subsidy, Mr. Saleh said that to ensure accountability, “Gombolola Barazas” will be held every six months. “Gombolola Barazas” are public forums at the local level in which local leaders account to citizens on how public funds are utilized. One week earlier President Museveni had announced that “Gombolola Barazas” would be used as a strategy to combat corruption in the government. Mr. Saleh said that the loans will be available to all Ugandans irrespective of ethnicity, religious, or political affiliations, but that recipients had to be members of SACCOs and engaged in productive work. Attending the event were hundreds of SACCO members, who reportedly chanted praises for President Yoweri Museveni, Mr. Saleh, and Dr. Kazibwe.

Almost 38 percent of Ugandans live below the national poverty line. In rural areas 64 percent live on less than USD 1 a day.

By Ryan Hogarth, Research Assistant

Additional Resources:

AllAfrica.com: “Uganda: Gombolola Barazas, a Vital Cog in Development”

AllAfrica.com: “Uganda: Sh262 Billion Set for Low Interest Loans”, by Josephine Maseruka and David Muwanga

AllAfrica.com: “Uganda: Microfinance Support Center to Give Out USD 1.8 Million to Rural Savers”, by Paul Mwijagye

MicroCapital.org, July 2008: “Ugandan Government Sets Interest Rates for Savings and Credit Cooperative Organizations at 9 to 13 Percent”

MicroCapital.org, August 2007: “Post Bank Uganda Receives Sh2 billion (USD 1 million) from the Microfinance Support Center”

The New Vision: “Keep Out of Trouble, Museveni Warns Saleh”

Uganda Business News: “Government to Offer Loans Worth 9 Billion Monthly”

Uganda Ministry of Finance, Planning and Economic Development: Ongoing Projects