Tom Muyunga-Mukasa is a Democratization, Governance, Justice, Health & Policy for Africa (DGJHAPA) subject matter expert from Uganda.
Microcredit has its promise as long as one is disciplined but it can be a mirage to a hopeless romantic.
Imagine this situation. You have an idea which you wrote down as a business plan. You have gone out and tested the market for the business you are thinking of. The business, it turns out cannot take off unless you find some money. Your friends cannot come up with the Uganda Shillings of 5,000,000 million that you need to run the business.
Then you remembered there is a micro-credit bank next to your home town. You walk in and you are told you need to be trained in financial handling skills. After two weeks of preparation, you get the first instalment of a loan to start your business.
That is what defines the criteria of microcredit. Micro means small. Credit is the money extended to you but will have to be returned after a given time. However, there are other factors one needs to be aware of once they have got a loan in the form of microcredit.
Microcredit is an outcome-oriented stimulant to development. However, it should be noted that development, in this case, may not mean profits. It may mean community development too. If it were to mean profits, it will require more government input as this requires subsidization, guarantees and long term support.
Microcredit can be used to support people living in poverty to transition and prepare themselves emotionally, psychologically and physically to become financially independent. In preparing them on all these social levels, they can adopt and adapt that requisite financial literacy mindset and discipline to handle money so that they realize profits. They then become more resilient and better able to provide for themselves and their families economically.
Uganda will see more people becoming entrepreneurs ready to take out mortgages and engage in operations linking them to different services. Where the services do not exist, demand and supply forces will prevail. Once people are allowed to come together and form viable groups these will act as collateral.
Why bother with microcredit anyway?
Access to microfinance empowers people to get involved in the mechanisms necessary for production and innovative. Viable groups are pooled resource and collateral deterring default on loans.
Optimal use of other services linked to microfinance such as education, health and community contribute to the creation of the service industry at local levels such as restaurants, performing arts, technology startups, influencers and think-tanks to name a few.
Sustaining a larger market linkage in the service industry means the existence of larger markets, diversification into other income areas and creation of a robust dependable social capital measurable in form of employees.
Microcredit has its promise in that it provides a connection to a catalyst for social change, self-reliance and sustenance. The only snag is the person receiving the loan has to make the decision to walk the lonely journey of slow progress. There is no promise for quick deals and quick earnings.