By Bagarukayo Abdul
As the Central Bank of Uganda, the Bank of Uganda plays a critical role in shaping the country’s financial landscape. One of the key levers at its disposal is the lending rate at which it extends credit to commercial banks. Unfortunately, the current lending rates are having a ripple effect that ultimately burdens local borrowers, particularly those who acquire loans from micro finances and SACCOs.
The reality is that many SACCOs and micro finances rely on loans from commercial banks like Centenary Bank, Stanbic Bank, and others to fund their operations. When the Bank of Uganda lends money to these banks at a higher interest rate, the costs are inevitably passed on to the SACCOs and micro finances. In turn, these institutions have no choice but to increase their own lending rates, placing an undue burden on local borrowers.
This phenomenon has far-reaching consequences. Many Ugandans rely on loans from SACCOs and micro finances to finance their businesses, pay school fees, or meet other essential expenses. When lending rates are high, these individuals are forced to take on excessive debt, which can lead to financial distress and even bankruptcy.
In order to mitigate this issue, we urge the Bank of Uganda to reconsider its lending rates to commercial banks. By reducing these rates, the Bank of Uganda can help create a more favourable financial environment that benefits local borrowers. This, in turn, can have a positive impact on the broader economy, as individuals and businesses are empowered to invest, grow, and thrive.
We believe that this move would be a critical step towards promoting financial inclusion and reducing poverty in Uganda.
We, therefore, call upon the Bank of Uganda to take a proactive approach to addressing this issue and work towards creating a more enabling financial environment for all Ugandans.
The writer is an NRM Cadre and socio-economic commentator.
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