Markus is currently doing a 3 month internship at Gatsby Microfinance Limited in Kampala, Uganda. Gatsby Microfinance has been a MYC4 provider since 2008.
It is Friday morning. We are sitting in a circle in front of the desk of the general manager. Through the thin windows you can hear the traffic is buzzing outside, you can hear people yelling out the price of sugar cane and pineapple, someone is playing Celine Dion on a stereo.
A committee meeting is in progress. Present are the credit officers and senior management. The credit officers are the people who work in the ”field” conducting loan appraisals, monitoring repayments, and collecting late installments. In a committee meeting, new loan applications are presented by the credit officers and senior management decide whether the loan is to be approved or not.
Every loan application consists of a thick file containing general information about the borrower, such as their closest family members, their approximate location (as many times people here do not have addresses), and other personal information. The credit officer has also collected financial information based on business records (if there are any) or estimations given by the borrower. Using the financial information a myriad of different ratios and indicators are made, indicating for example the business leverage, repayment capacity, liquidity, and much more. There is also information regarding previous loans and securities. Finally, there are attached pictures of the prospect borrower, the business, and the securities.
The process of scrutinizing a loan application is more art than science. Senior management reads through the file while the credit officer gives a brief oral presentation. After making sure that the financial indicators are healthy and that all the required documents are in place, the legal documents and pictures are closely inspected. This is where the art comes in.
First, are there any forged documents? A number of times I have seen loans being turned down because the ink on a supposedly 10 year old paper looked too fresh. Something that is striking about Uganda is the general lack of trust among people, combine this with a society where there are weak institutions and lack of clearly defined property rights, and doing business becomes difficult. Especially in the banking industry.
Second, is the story and the information given by the client reliable? Can a carpenter really make and sell 20 dining room tables in one month, or has the client been overestimating his or her sales? Does the man that is acting as a guarantor really look like his brother? Was it confirmed by the village elders that the man really owns the land that is to be used as security? In a nutshell, does the applicant give off a good vibe?
This process might seem a bit arbitrary to an outsider. But the senior management at Gatsby Microfinance have a combined experience of 32 years within the industry, so they know what they are doing. However, the rigorous work that needs to go into each and every loan application is one of the reasons why lending money in the developing world is currently an expensive affair. Hopefully with time societal institutions will grow stronger and trust among fellow citizens will increase, the cost of doing business will go down, and productivity will increase.