Greedy money lenders are the products of poor, unequal and inefficient societies

They spend money they don’t have, on things they don’t need, to impress people who do not care. They will do better once they are out of preschool.
 
Most of the debt, however, is simply functional. Ugandans borrow to buy cars because there is no alternative public transport that is affordable, safe and reliable.

We borrow to build our homes because there is no public housing and building costs are high, including the private cost of installing what should be public utilities.

We also borrow to take our kids to private schools and hospitals because the public ones are moribund.

In our low-wage economy, most people are economic gymnasts, borrowing just to stretch life to fill the spending gap between one paycheque and the next.
 
The bottom line is that many people would not need to borrow if the government provided decent public services.
 
Nominally, ordinary people borrow from commercial banks. A credit card or similar facility offers the disciplined borrower interest-free money for stop-gap expenses.

This builds up a good credit rating and repayment history, which offers the bank confidence to lend you more money for bigger purchases like a car, or a house. 
 
Given the largely informal nature of our economy, however, few people are assured of their next meal, let alone income and thus loan repayment. “I am expecting some ka-money” doesn’t fit in the space for ‘regular income’ on bank loan application forms.

And even those with formal jobs face two additional challenges: one, their low salaries often can’t cover the bank’s confidence threshold.

Whatever they can borrow almost always leaves them on a bed too narrow, and a blanket too short. 
 
Secondly, commercial banks are notorious for their opacity, the voluminous nature of their paperwork, and their bureaucratic penchant for ‘sign here, sign there’.

Loans take weeks, if not months, to approve. For people with emergency financial needs and those without formal employment or business contracts, shylocks are often the money lenders of first, and last resort.
 
Which brings us to the price of money. All lenders, be they shylocks or commercial banks, often lend out other people’s capital and those people demand a reasonable return.

That return should cover the cost of operations, the risk of losing the money, its erosion due to inflation, and the opportunity cost of lending it to you (what they would have made if they had, say, just bought land or bonds).  

Where inflation and the risk of losing money are low due to efficient credit markets and recovery ecosystems, much of the lending is de-risked.

Ensuring that identity documents are fool-proof, land titles and other securities cannot be compromised, and borrowers do not abuse court processes to hide from their creditors, would immediately reduce the cost of credit-worthiness checks, enforcement and recovery, as well as unlock money often set aside to cover these bad loans.
 
This would leave the cost of doing business and opportunity cost, but let us focus on the second. Someone with a billion shillings can lend it to the government for 20 years and receive a net income of 15 percent every year. Lending to individuals or small businesses instead requires them to price in the risk of bad securities, vexatious litigation, or shameless borrowers – all on top of the 15 percent they are almost certain to receive risk-free from the government. 
 
Many money lenders charge extortionist rates and take advantage of people’s desperation; they should be regulated closely, and disputes arbitrated quickly and fairly. Commercial banks should price their loans more transparently.  

But if the government wants to reduce the price of money in Uganda, it should tackle the cost of doing business, manage its penchant for wasteful expenditure, and cut its appetite for borrowing.

Once the government borrows less and pays less in interest, capital will seek higher returns from the private sector and offer cheaper and faster loan deals. It is economics, not politics, stupid!

Mr Daniel K. Kalinaki is a journalist and  poor man’s freedom fighter. 
[email protected]; @Kalinaki