Micro Finance Institutions (MFI)
MAKING MICROFINANCE WORK FOR THE POOR OF MAKULUBITA –UGANDA
CLEAN-Africa with this project seeks to unlock the potential of micro finance services and tools as mechanisms for helping rural poor in Uganda leap over insurmountable hurdles that have been hindering them from achieving their dreams of a sustainable livelihood.
Although Uganda is on track to meet the MDG target of halving the proportion of people living on less than $1 a day (Reference 1) , with the proportion of people living below the poverty line declining from 56% in 1992 to 31% in 2005/06, significant regional differences in poverty remain, with the highest poverty levels in Northern Uganda (Rerference 2) . The rural areas of central Uganda are home to nearly 40% of the poor people in Uganda. In Luweero District (the area targeted by the project) 40% of the population live below the poverty line.
Along with other regions (Rerference 3) , Luwero lags behind in meeting MDG one (Rerference 4) , compromising national MDG achievement. The project will support the Ugandan government’s commitment to expanding banking services, creating employment and increasing income levels (Rerference 5) to achieve MDG One.
This project will contribute towards global understanding of three of the standard outcome indicators under the rural micro and SME finance subsector; percentage increase in number of local enterprises in rural areas, percentage of rural population using nonbank financial services and percentage of total savings that are mobilized from rural areas. As the project will work in rural areas, this will be achieved by measuring Income Generating Activities (IGAs) established or expanded as a result of the project, keeping record of the number of members in the saving and loan groups and measuring total saving amounts
Therefore, this project seeks 54.000 euros for a period of 3 years to facilitate 100 groups of disadvantaged rural women in Makulubita (Uganda) to have capital generating options, acquire business knowledge and skills and, access markets as well as market information.
Luwero District is characterized by poverty, displacement and disruption. As a result of insecurity due to the activities of the 1980 – 1986 civil war, isolation, changing weather patterns, and a strong reliance on agriculture, 40% of the population live below the poverty line., Luwero therefore lags behind in meeting MDG’s and thus earns a priority space with the Post MDG’ one, compromising national achievement.
Poverty is characterized by erratic, low and unpredictable cash flows, severe food shortages, very low incomes a lack of assets and limited household expenditure on essentials such as health and education. Within Makulubita, a lack of access to capital combined with a lack of relevant skills and knowledge are recognized as key causes of poverty.
Financial services are inaccessible and expensive. With little to invest and considered high risk by formal financial institutions, only 5% of the targeted population have access to banks or SACCOs. Informal financial services are marginally more accessible with 23% of people accessing locally based saving and/or loan schemes . However, 72% of people have no access to financial services. The main reasons for not saving include a lack of awareness and knowledge about available options (42%) and poverty i.e. having nothing to save (29%). Lack of security with which to take out a loan or fears around losing their security stopped 59% of people taking out a loan.
Financial exclusion plays a significant role in preventing the development of reliable incomes and limits investment into urgent household needs or IGAs. This limits wealth creation and traps people in poverty. In the targeted areas, 35% of people do not have an IGA the main reason cited for this was a lack of capital to invest (54%). Additionally, 56% of people have never accessed business skills training limiting opportunities to expand their IGAs and develop a stable income.
In more than 90% of households in Makulubita District, men control financial and business matters and women have little or no say over the utilization of proceeds from household IGAs. They are involved in providing labour but not planning or finances and work long hours undertaking labour intensive activities or household chores. Despite the fact that women are responsible for family wellbeing (they commonly invest 90% of their earnings into the health, education and well-being of their families), women in many households have no involvement in household decisions.
The 52 parishes in Makulubita were chosen for their rural geography and isolation from mainstream financial and government services and existing related projects. High poverty levels prohibit target communities from benefiting from government programmes which require co-funding and matching grants from the community. Throughout the project’s development, the availability of similar services needs and solutions requested by potential beneficiaries have also been considered. For example, 50% of peoples most favoured form of financial services are informal, local savings and loan schemes whilst 52% believe business skills training and access to capital are crucial in helping them further develop their IGAs
Small enterprises and most of the poor population in Uganda have very limited access to deposit and credit facilities and other financial services provided by formal financial institutions. In Uganda, only about 5 percent of the population has access to the banking sector.
Indeed in recent years there has been a growing interest in ways of making village savings and loan associations projects and programs more effective in reducing rural poverty, increasing social inclusion, and improving living standards of the rural people (Biggs, 2006).
First, such savings help poor farmers to smooth their consumption expenditures between lean and peak harvesting seasons, and provide a cushion against income fluctuations caused by exogenous shocks. Second, savings could be used to pay for inputs needed at the start of production processes, and self-finance future investments or leverage supplementary financing for them. Third, saving deposits also provide a convenient vehicle for setting aside money for such costly future events as weddings, children’s education, and funerals.
The project will contribute towards wealth creation and a reduction in the number of rural men and women living below the poverty line in Luwero District. This will be achieved by increasing economic opportunities as a result of the provision of access to local self-managed savings and loans groups and providing the skills, knowledge and support necessary to enable people to establish or expand IGAs. This will improve household cash flows level and enable people to invest in IGAs and improve their profitability. This will better equip people to overcome income shocks.
To improve the livelihoods of poor and marginalized households in 52 Villages of Makulubita, Luwero Districts, Uganda through improving their access to financial services by 2017.
- To establish an appropriate saving and credit methodology among 3000 persons in 52 villages of Makulubita county by 2017
- Establish a community based system to support VSLA replication other villages in Luwero districts by 2017
- To develop CLEAN Uganda staff capacity in managing and implementation of VSLA methodology
- To establish an appropriate and effective VSLA documentation and learning system by 2017
- To enhance enterprise development skills of at least 60 % of the VSLA members
The immediate target group or beneficiary of the project will be women who are marginalized and sidelined by the collateral asset based micro credit products. The women constitute more than 50% of the adult population. This is a community with more female-headed households as consequence of the Bush-war and so the project will indirectly help the orphans in the community.