Kampala- Uganda (PANA) -- A study revealing that lack of transparency is the main cause of dishonesty between borrowers and lending institutions in Uganda -- a cancer wrecking efforts to fight poverty -- has prompted the launching of a six-month Consumer Education Project in the country.
A study done by the Uganda Consumer Protection reveals that despite effort and donor money that has gone into building a large industry of Micro Finance Institutions (MFIs) in Uganda, consumers (borrowers) continue to complain that they are not fully informed of the cost and conditions of loans before they take them.
Equally many borrowers do not give accurate information to the MFI, a glaring sign of lack of transparency between the two parties.
Thus analysts blame gross ignorance, as over 55-percent of country's population of 26.
4 million people is illiterate but forms the bulk of rural poor, which many MFIs use to exploit and lead them into indebtedness.
Of the 358 respondents, the study obtained by PANA shows that 40 percent confessed that they did not give their financial institution all the information that was requested of them, particularly about other debts.
Whilst only a third said they trusted their financial institutions very much, up to 68 percent of borrowers were found complaining that they did not fully understand the interest and fees on their loans.
The foregoing study results prompted the launching of the Consumer Education Project last Wednesday, a campaign starting in the high populated districts of Masaka in the southern region and Mbale in eastern Uganda.
Analysts said the campaign will cause consumers to enjoy their right to know all details about financial products on offer to them, as it will in turn see them give accurate information about themselves to their prospective MFIs.
"To have a strong financial system, it's not enough to have profitable institutions," says Paul Rippey the Investment Manager, Financial Sector Deepening Project Uganda (FSDU).
He added: "We must let market forces work in favour of consumers.
For this to happen, consumers must have their eyes opened so they can make intelligent choices.
"First of all, they (consumers) need to be able to choose among products the market offers.
" The study further showed that 58 percent of respondents said "having access to secure savings was more important than having access to loans, as opposed to 38 percent who said a loan was more important.
" Rippey noted that there was too much emphasis on lending in Uganda, with many people thinking that getting credit would help them get out of poverty.
"True there is never credit without debt," Rippey noted.
"But with exhibition of good financial discipline, good investment opportunities, availability of markets, and proper management of investments, debt can help people get out of poverty.
" He argued further: "Sometimes people say Ugandans do not have s saving culture, but it may be that people simply do not have secure savings available to them.
" "Consumer education is a crucial element of the financial system.
It will help consumers choose better products, and encourage them to shop around for the safest, least expensive institutions," Rippey told PANA in an interview.
"Trained consumers will appreciate the value of long-term good relations with their financial institutions, and will be more likely to avoid debt trouble," he added.
While launching the campaign, State Minister for Micro Finance and Small Enterprises, Agard Didi, observed the importance of consumers to be made aware of their rights and responsibilities.
"The principal human right of every client or potential client is to understand and know the exact cost of product or service, be it a loan or a savings product.
"This information should be explained in clear words and in vernacular languages for the illiterate to know.
In so doing, it will be expected that consumers will be transparent and truthful to MFIs about their productive assets and other debts, where applicable," Didi said.
The focus of the campaign is awareness about consumer rights and responsibilities, and knowledge of different types of products and institutions.
Local analysts said that experience showed that informed consumers made the best customers.
For they appreciate the value of long-term good relations with their MFIs.
"They are less likely to get in debt trouble.
They respect their contracts better.
They demand more from their institution, and help the institution grow in capacity and professionalism," said Soulieman Namara, pioneer of the Consumer Protection Awareness programme in Uganda.