Since 2007 the Agricultural Microcredit Loan scheme has changed the lives of 25,000 people in the rural area of Mubende.
- Those who had no land now own a plot
- Those who had no farm animals now own a cow
- Those who lived in a mud house now have a permanent one.
- A widow with four young children who was chased from her land, received a loan to rent two acres of land to grow crops which feed the family and pay for school fees.
Today the project is as fresh and popular with farmers as the day it started with currently over 40 farmer groups in the scheme and a further 60+ farmer groups on a waiting list, eager to join the scheme and be part of the enthusiastic group of leaders in our Training Seminars.
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How the Agricultural Microcredit Loan Scheme works
The microcredit scheme consists of an interest free three-year loan to an established group of farmers usually between 25-40 members. This is combined with training in sustainable organic agriculture and bookkeeping by a Key Farmer Trainer (KFT). From the main loan the group gives small 10-month loans to its members. These enable them to buy or rent some land, pay for labour or buy an animal or seeds.
Individual farmers pay interest of 2-3% per month on their loan to the group. These interest payments are retained by the group (except for 0.5% per month for the expenses of the Key Farmer Trainer). This enables the group to build up its own loan pool.
After three years the initial group loan is repaid and the group will have roughly the equivalent amount of the original Agricultural Microcredit Loan, now as its own capital. Thus, the group can continue lending to the members. The returned capital can now be moved onto a new group.
An example of the Scheme in action
A woman borrowed 200,000 Ugandan Shillings (£45) and bought a young cow, then sold it for 500,000. She paid off the loan and used the extra 300,000 to buy land and pay school fees.
Later she got a new 300,000 loan to buy another cow, but had to sell early for 400,000 because she needed money for health problems, but kept enough to buy another cow which is already worth 450,000.
She has learned to plan, feels more secure and in control.
The philosophy of microcredit is not to give a hand-out, but a hand-up.
The recipients have to make it work with their own planning and effort, and in doing so gain much more than food and money alone.
Individual 10 month loans for income-generating farming projects
4 month grace period
Affordable interest
Declining balance
3 equal repayments
- We only lend to rural farming groups and the repayment plan is based around the growing season.
- Each group has an executive committee consisting of at least a chairperson, secretary and treasurer. Some groups choose to set up a loans sub-committee to monitor the loans.
- The treasurer has to attend a half day bookkeeping training day and before the Agricultural microcredit loan is paid to the group, the treasurer has to also pass a basic book keeping test.
- Each farmer group has a Key Farmer Trainer (KFT). The KFT works with the group members over the course of about a year before the group can receive an Agricultural Microcredit loan, often visiting the group on a monthly basis. The KFT trains the group in sustainable organic agricultural practices and helps the group set up its saving and lending scheme together with loan- and cashbooks. The group must fund the KFT’s travel expenses.
- Each year every individual group is visited by an International team member of Learning 4 Life – Africa who listen to the farmer group talk about themselves, their progress and their books are checked to see that all is well.
- Potential new groups are also visited by an International team member of Learning 4 Life Africa to hear the farmer group talk about themselves, what they have learnt from their KFT about organic sustainable agriculture, why they want an Agricultural Microcredit loan, their books are reviewed and then the groups are assessed as to which groups are ready to receive an Agricultural Microcredit loan. Those not successful this time are shown ways to improve so that next time they will be selected.
- Loans are given to new groups usually twice a year before the beginning of the rainy season, February and August.
- An individual cannot take a loan from the group to pay for personal expenses such as school fees or medical expenses. The individual’s loan has to be used for an income generating project, the profits of which can then be used to pay for school fees, medical expenses, home improvements, farm investments, etc.
- When an individual takes a loan from the group he or she has to present the project to the group or a loans committee within the group and the individual’s loan has to be approved by all the other group members. This is because, if the individual defaults on the repayment of the loan and interest, then the other members have to step in and repay the debt. The members of the group basically act as each other’s guarantors. Thus, the group self regulates and supervises the lending, including the amount of loan given to each individual.
- To fit in with the growing season, the individual’s loan is repaid back in 3 equal instalments after 4 months, 7 months and 10 months. The interest is calculated monthly over the declining loan balance at the above intervals and paid together with the loan repayments.
- An individual cannot have a 2nd loan from the group until it has repaid the first loan in full and all members of the group who wish to have a loan, have had that opportunity. This ensures that all members have an equal opportunity to benefit from the group loan.
- Each time money is repaid, we encourage the group to lend the money out again to other members so that the money continues to work for its members and as such the group will keep relatively low cash balances until it is time to repay the Agricultural microcredit loan at the end of the 3 year period.
Each year we run a training seminar in December which is attended by the leaders of the groups who have received the Agricultural Microcredit loan and for potential new groups. As such we have in attendance over 140 people.
Unlike many International Aid organisations we do not support those who attend financially. We do not pay travel expenses, nor provide refreshments. They attend because they know they will learn things that will help them improve their lives. The group may agree to pay their representatives who attend the seminar their travel expenses from the group’s own funds.
The seminar covers different aspects from improving soil fertility to growing organic bananas or coffee, to marketing and other topics which arise during group visits on the economic aspects of farming. The importance of the need to keep farm records and to understand markets. The profitability of different crops are calculated and the likely income per month are also discussed.
The talks are delivered in the local language using local educated specialists from local Ugandan NGO’s, such as Kulika, C-care (Community Care for Development), RUCID Agricultural college and RHU (Reproductive Health Uganda) with whom we have developed good relationships in recent years.
There is often one session which is of a non-agricultural nature which maybe health such as reproductive health or protecting the environment or climate change such as promotion of locally made fuel saving stoves.
At lunch time Mubende Hospital provides a couple of medical people to conduct HIV tests for those attending the seminar. Family planning advice is also available for all farmer group members who want it. Most of the seminar attendees take time to have a test and thankfully there are very few positive test results which is reassuring for all concerned.
The end of the day is also used to recognise those farmer groups who have repaid their Agricultural Microcredit Loan after 3 years and each group is presented with a certificate. This certificate is being recognised by the local banks as suitable evidence support an application for a commercial loan, if a group wishes to go down that route.
This is a half day workshop which follows on from the Annual Training seminar and is for the treasurers of the microcredit groups and potential groups.
It is a practical session and delivered by the Key Farmer Trainers. During the course of the workshop the treasurers learn basic book keeping skills including how to use a calculator. They practice how to work out the loan interest that an individual has to pay on his or her loan at different stages and also how to recalculate payments in case of arrears. The treasurers are provided with a solar powered calculator for their group to help them with this exercise when they return to their villages.
The Agricultural Microcredit Loan scheme fulfils a very real need, as it is impossible for ordinary small scale farmers in Uganda to escape the cycle of poverty without the kind of training and loans that we provide. High interest and the need to provide security on bank loans prevents a group from building up a loan pool and lending schemes of the Ugandan Government do not reach the rural population.
Thousands of farmers in Mubende are extremely grateful for the opportunities the scheme has given them.
- One family has been able to improve its ability to improve its overall standard of living and income generation to support a child to go to university while another family was able to provide the capital for one of their children to set up a small copier business in Mubende town and whose services we used.
- People have said they were no longer afraid of hunger, and that our loan system takes away the fear of losing their homes, as with banks.
- Another group hired a trained playwright to create a 10 minute play about the agricultural microcredit loan scheme and they have travelled to different villages to promote the scheme.
- A number of group leaders have developed confidence and have stood for local council positions and as such are becoming leaders of their communities.
- There are hundreds of similar examples.
A look at the 17 United Nations Sustainable Development Goals, adopted by member states in 2015, shows that our Agricultural Microcredit loan scheme with all its accompanying elements contributes to many of those aims: no poverty, zero hunger, good health and wellbeing, quality education, gender equality, clean water and sanitation, affordable and clean energy, decent work and economic growth, reduced inequalities, sustainable cities and communities, responsible consumption and production, climate action, and development of peace.
Within Rotary International’s 7 areas of focus the project at first sight would be placed under the growing local economies area of focus. However, this project also impacts other areas of focus such as – Saving Mothers and children; supporting education; fighting disease; provision of clean water, sanitation and hygiene; protecting the environment and helps to promote peace by reducing the conflict within communities.
The philosophy of microcredit is not to give a hand-out, but a hand-up. The recipients have to make it work with their own planning and effort, and in doing so gain much more than food and money alone.
Group cooperation
The benefits for the group are wider than just about money. Members learn to organise and to work together in a transparent and democratic way. This often results in the realisation of group projects and collective selling of produce at better prices.
Promotion of ideas
Homemade Fuel saving stoves, which use 2/3 less firewood compared to open 3 stone cooking fires, are actively promoted. The KFT’s usually teach new groups how to build them at no costs from local materials. This is very important as this not only saves on the burning of firewood but also on the time needed to collect firewood. This can save up to 60 days a year, leaving more time for the farmers to work in their gardens and make sure crops are planted and harvested in a timely manner.
Better crops
Population pressure means that farm sizes are getting smaller. Farmers will need to switch to fast growing high value crops to maximise their income. It needs training and investment to bring this about.
Low failure rates
The failure rate of microcredit loans is remarkably low. On a total of 362 Million Ugandan Shillings lent to microcredit groups only 11.5 Million is currently outstanding. This represents only 3.1%. Most of those debts date from the early years when the local coordinator died suddenly and the system still needed improvements such as legal documentation and better guidance of groups. In a small number of cases the non-payment was due to dishonest leaders. Two of those were taken to court and ended up paying more they would otherwise have paid. This now serves as a useful warning to others. On the whole, groups understand that it is fair that others in their communities should also benefit from an almost interest free loan just like they have, particularly as the groups have by that time built up their own loan pool.
Covid 19 pandemic implications
Although to date relatively few people have become infected with the Corona virus in Uganda, very strict anti- Covid restrictions have been in place. They have made it impossible for microcredit groups to function in the normal way, as monthly group meetings were banned and markets closed. Repayments and new loans are mostly made during those meetings. Most groups found ways around it and individuals kept up their regular payments. Other groups decided on a moratorium.
Of the 6 groups which were due to pay back their loan August 2020, 4 managed to do so. This allowed us to give microcredit to 4 new groups in August 2020. 10 Groups are due to pay back in March 2021.
The local coordinator, though, believes that the groups will be ready to return their loan. We are very proud of the resilience and perseverance of our farmers, despite the fact the Ugandan government gave borrowers the option of suspending loan payments. It shows people’s trust and appreciation of the microcredit scheme.
With the policy of providing a hand up and not a hand out, the original capital base within the rural community of 105 million Ugandan shillings has actually increased to over 612 million Ugandan shillings. This has been achieved because the original capital has been repaid and leant out again and the groups themselves have been able to build up their own capital base to continue once the original loan has been returned.
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127 group loans have been given out. Prior to 2017 there were issues with 13 groups who did not repay or fully repay their loans;
- 2 groups did not repay anything – one had a dishonest chairman and another group were a soldiers group who disappeared
- 1 group was a “Fake” group created by the local coordinator at the time
2 groups were taken to court and money was recovered through legal process:
- 1 group transferred land to repay the loan
- 1 group gave coffee beans to repay the outstanding balance
As a result only UGS 12,255,100 Ugandan shillings not been repaid – this represents only 2.3% of the amount of money loaned out.
We are happy to say that since 2017 all groups have returned the original loans.
Our Agricultural Microcredit Scheme meets the following UN Sustainable Development Goals:
