1 March 2010

Uganda: Loan Schemes Need to Be Transparent


Kampala — Two loan schemes for university students were announced by the Government last weekend. The first scheme, communicated by the President, is meant for unemployed university graduates. Through the fund they will get interest-free or low interest loans to start up an income-generating activity.

The second scheme, announced by the education ministry, targets bright private students who are too poor to afford university education. Both initiatives are good news for Uganda's youth and their parents. Youth unemployment is one of the biggest problems Uganda is facing. Every year 300,000 young people enter the labour market for only about 8,000 jobs.

Jobless youth may resort to crime or rebellion, thus becoming a source of social or political instability. And considering Uganda's rapid population growth, the problem of youth unemployment is likely to get worse.

The graduate fund will tackle youth unemployment and allow graduates to become job creators rather than job seekers. The student loan fund will make tertiary education more accessible to the poor, thus expanding Uganda's human resource base. However, the schemes need to be transparent to be effective. Unlike NAADS, whose criteria were subject to interpretation, the criteria for those benefitting from the loan schemes need to be objective, clear and indisputable.

The schemes should not be used for political reasons or favour relatives of those in charge of the funds. The beneficiaries should be selected by a committee of academics and published in the media. The schemes also need to be sustainable. Other countries that have introduced student loan schemes have accumulated huge debts due to high default rates. Uganda should learn from countries that have been running similar programmes. Ghana, for example, this year established the student loan protection scheme to protect loan beneficiaries, their families and the fund against default arising from death or 'incapacitation' of borrowers.

A contribution of 0.5% of loan amounts is deducted during disbursements. Everything should be done to ensure that commendable initiatives like these are not again killed by abuse or corruption.

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