money lending article

Guma Davis Banda, the Managing Director and an Advocate of Guma & Co Advocates told The Independent that the provisions in the Act are as good as nothing since none of them today applies. "The ministry of Finance needs to urgently draw up guidelines to monitor the operations of money lenders," he said.

Already, Bank of Uganda (BoU) is working on a new regulation; the Consumer Protection Mechanism (CPM) to protect borrowers from being cheated or exploited by money lenders.

Robert Mbabazize, BoU's Assistant Director Financial Stability, says as of now however, the central bank has no mandate to regulate money lenders. It only deals with commercial banks and other microfinance institutions.

Another way out would be for commercial banks and microfinance institutions to embrace new technologies, like mobile banking, that move credit to customers far away from formal lending institutions and speed up the borrowing process.

BoU's Deputy Governor Louis Kasekende, made this point at the annual conference of the Association of Microfinance Institutions in May. He blamed the reliance on money lenders for quick money on two problems; the large segment of the population that persists outside the formal banking sector and the sectors failure to provide innovative products fit for the purpose.

He said only 26 per cent of the adult population above the age of 16 have ever used the formal banking sector like commercial banks, credit institutions and microfinance deposit taking institutions (MDIs).

He said, however, even those Ugandans with bank accounts take loans from informal credit institutions or individuals because bank loans are inaccessible and have lots of red tape. A senior official of one of the commercial banks conceded that the strict rules and procedures that commercial banks demand from customers to get a loan could be helping informal lenders to take off.

"You need to be a customer having an account with us in order to access a loan. You also need to be with business alongside security which would pay back the loan to us. If you don't have the above we advise you to get them and be served," the official said. That needs to change, because as everyone knows, all of us at one point might need to borrow money quickly. We should be able to get it safely from our bank and not be left at the mercy of a loan shark.

The effects of badwagon on financial issues

IF you have been managing your finances poorly, how easy is it to change and become more efficient?

This is a dilemma that most personal finance enthusiasts have to grapple with daily. The sad truth is that despite the volumes of financial management resources available, there is a worrying trend of financial distress among a big part of the population.

Even those that are familiar with the basics of money management are not applying the skills to their daily lives.

A number of people I have talked to have admitted that, while they appreciate the importance of prudent money management, it is difficult to practice what they know.

These people do not realise is that it is easier to cultivate financial discipline than facing the consequences of poor money habits.

If you are one of the diligent consumers of financial knowledge who do not apply the principles, hereunder are some issues you need to consider:

For starters, you need to change the way you think about money. If you have some form of income, your thoughts should revolve around aquiring skills to leverage what you have to grow your current net worth (assets-liabilities).

To move the process forward, stop tracking your expenses in your head. develop a recording sytem on paper or use the computer to track your money.

It is only when you apply this that you will appreciate the state of your financial health. Thinking differently helps in more ways than you can imagine. One of them is avoiding the ‘herd mentality’ approach to making crucial decisions about money.

Instead of simply following what others are doing, you need to do some homework before making decisions about money. For example, if your relative opts for a fixed deposit account as an investment, this is not enough reason for you to do the same. Remember, your financial state is not a replica of your relative’s.

Besides, you do not have the same investment objectives or risk profile. A fixed deposit account may work for them because it is one of the several options available, plus other assets that are generating passive income.

You should avoid being a copycat. The habit of setting up a business similar to that of everybody around town is a very bad idea. The fact that most people have set up such a business does not mean that it is easy to run and grow.

It is advisable that you have to do your homework first before you venture into any field.

In most cases, proponents of the ‘herd mentality’ tend to spend lavishly to keep up with the Joneses. Because your peers spend more than they earn, it is usually easy to ‘catch the bug’ and back the trend.

However, one of the lessons that can be drawn from the prevailing economic condition is that if you previously got away with extravagancy, you will not be lucky today.

Unless you cut out the excesses, your finances will always be a mess.

If you want to turn your life around, think differently and cultivate a saving and investing culture. This would be a big step in the right direction, especially when everyone around you is borrowing to buy the latest ‘toys.’

You should also avoid falling victim to the common excuse that you cannot streamline your finances because you are hardly making ends meet.

You could even consider using your accumulated knowledge and contacts to start an income-generating project. You will be surprised with your ability to translate these resources into big income streams.

Some of the things that you do not pay attention to, for instance, newspaper classified ads, are also a goldmine of information. You will be amazed by the ideas you could develop from the activities, products and services crammed in this section.

For example, if you are interested in micro finances, classified ads are a good source of information for deals, plus potential growth areas as far as location is concerned. This can be supplemented with discussions with investors in the area (micro finance) to help you make informed investment decisions.

Ultimately, changing the way you think is one of the effective ways to apply the accumulated financial knowledge to your daily life.