Access to Rural Non-Farm Livelihoods - Natural Resources Institute

with other sources of funding already in place, the requirements for collateral, the high
interest rates, short terms, and lack of grace periods, and the costs of travelling to Kyotera to
apply for credit and to make monthly repayments. The lack of a grace period in particular
makes it difficult for borrowers with only one IGA, as often the IGA supported by the loan
does not generate enough profit immediately to service it. Loans to agriculture are especially
problematic, as no profit is realised until after the harvest, and delays in disbursement can
render the loan useless. However, the conservative lending policies, high interest rates, and
“diligence” in ensuring repayment have allowed the RRCS and the Kyotera CERUDEB
branch to become financially self sustaining, albeit with relatively small margins, and the
provision of credit to medium sized enterprises (in the local context) has been important in
generating employment.
The DWCS was established in response to the inability of the RRCS to provide appropriate
credit to women and the poor. In 1995, Danida invited the Uganda Women’s Finance and
Credit Trust (UWFCT) to join them as a partner, but after an initial appraisal, they declined
due to the high costs of providing small loans in a sparsely populated rural area. At that point
(1996) the then CAO suggested the Victoria Building Society (VBS), a small local institution
formed in 1989 following the collapse of the Equator Building Society when the Kyotera
branch’s business was reorganised under local management and refinanced from members’
savings 37 . The VBS had earlier been involved with the disbursement of the Government’s
Entandikwa and PAP funds, as well as its own funds, and a small amount of money provided
by the President to the Rakai Women’s Association.
However, the VBS has, and has had numerous institutional and administrative problems
which have affected its performance and the running of the DWCS. Foremost among the
concerns are its lack of legal status and failure to register as a financial institution, its poor
record keeping, its weak financial position, lack of capacity on the part of its staff, and its
failure to hold regular General Meetings, to provide dividends to its shareholders, and to
clarify the status of its board, as well as a negative report from the Bank of Uganda, and
rumours of disbursement malpractice 38 .
Some of these problems were known to Danida before the DWCS began, and in the initial
design of the scheme there was considerable emphasis on institutional capacity building, with
almost three times as much budgeted for the development of the VBS itself as for the loan
fund. However, at almost exactly the same time as the first tranche of the loan fund was
released, PriceWaterhouseCoopers released a highly critical report on the VBS which opined
that its institutional failures were so severe as to make further investment unwise. The report
was in turn criticised by the management of the VBS, but, unfortunately, it came at a time at
which there was considerable turnover within Danida and the Danish Embassy, and the
incoming staff, lacking institutional memory, had no option but to accept it at face value.
Thus only the first disbursement of 30,000,000 shillings (~US$ 17,000) was made to the
VBS, with subsequent disbursements and technical support frozen indefinitely.
Despite the lack of further funding and much need technical support, the VBS went on to
loan out and rotate the fund, and implement the DWCS, aiming to loan to poor rural women
without other access to credit in the hope of improving their and their households’ economic
37 Many influential local politicians and civil servants sit on the board.
38 For more on these various problems, see Bird et al., 2000.
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