Uganda: Save Schools From Loans Dilemma, Banks Tell Govt

The banking sector, under Uganda Bankers Association (UBA), has said they "are not interested in selling" distressed school properties, urging government to come up with a funding mechanism instead of advising proprietors to sell off their properties to clear debt obligations.

Speaking in an interview on Tuesday, Mr Wilbrod Owor, the UBA executive director, told Daily Monitor that education was a public good and a tool of human capital formation, whose well-being should be a concern of both government and every citizen.

"Banks are not interested in taking over schools and selling them off. We would like to see them function. That is why it is important that we have a funding mechanism before thinking of selling properties," he said, noting that even if banks choose to sell off properties, the market is extremely volatile.

"Property values have generally gone down. So, both sellers and buyers of schools are not making money. It is important to have a funding mechanism to save the education sector," he said.

Early last week Finance Minister Matia Kasaija advised distressed proprietors in the education institutions to sell off some of their properties to clear debt obligations, some of which have accumulated in the last two years.

Schools have been closed since March and phased opening was suspended in June due to a surge in Covid-19 cases .

A top banking executive, who preferred anonymity to speak freely, told Daily Monitor that for the first time in over three decades, government should take interest in what is happening in the education sector by first, establishing an Education Recovery Fund to save the sector from collapse.

The Fund, he said, will not only save schools but will relieve banks from accumulating non-performing loans as well as helping government to mitigate risk aversion in the banking sector.

The Fund, which should benefit from different funding sources but driven by government and operated such as the Covid-19 Response Fund, according to the banking executive, should initially look at putting together about $300m administered through Bank of Uganda, some of which should be available to educational institutions on concessionary terms.

Daily Monitor understands that a framework has already been submitted to the Ministry of Finance, drawing attention to a funding model that can save schools from repayment distress and cash flow challenges.

The funding model is structured in a way that banks can assess and submit distressed portfolio exposures to the Central Bank for onward funding.

However, the model also considers educational institutions by providing them with a window through which they can apply for relief or apply to access credit to solve cash flow challenges.

Media reports also indicate that schools have already presented a Shs2.5 trillion bailout request to President Museveni that is yet to be considered.

A source privy on the model presented to the Ministry of Finance, who requested anonymity, said the Education Recovery Fund, if established, will avail short term loans of up to 24 months to help schools meet costs such as salaries, maintenance and other related costs.

"The proposal puts together a medium to long term recovery fund of up to eight years to cater for mortgage loans and structural changes," the source, who is also a top banker, said, noting banks are also suggesting creation of a structured tradable instrument such as a five or 10-year bond to address challenges of government revenue.

According to data from Bank of Uganda, as of March 2021, a significant chunk of non-performing loans in the construction and real estate, which stood at 57.4 per cent, resulted from non-payment of educational institutions loans.

Distressed

For now two years now, banks have been accommodating distressed educational institutions under the Credit Relief Initiative created by Bank of Uganda to save customers struggling with cash flow challenges.

According to data from Bank of Uganda restructured loans now in default by at least one installment, many of which are in the services and real estate sector, rose to Shs995.6b in April from Shs764b.

Within the services sector, education and tourism, which have a high multiplier effect and value chain, have registered the largest default, which creates concern for the banking sector.

Government is still uncertain when it will reopen schools, pegging it to vaccination of all learners and teachers.

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