Umwalimu sacco in novel strategy to recover loans

Friday January 30 2015

A primary school in Rwanda. A number of

A primary school in Rwanda. A number of teachers who owed the Umwalimu sacco more than Rwf1 billion have since left the profession and disappeared without having repaid their loans. PHOTO | FILE  

By Rodrigue Rwirahira

Teachers who are members of a co-operative have welcomed a move that is aimed at recovering some Rwf700 million from loan defaulters.

This comes after it emerged that a number of teachers who owed Umwalimu Savings and Credit Co-operative (sacco) more than Rwf1 billion have left the profession since 2009 and disappeared without having repaid their loans.

The non-performing loans (NPL) in the sacco’s books has been increasing, with last year’s figures having risen by one per cent. That translates to an increase of 6.1 per cent, 3.3 per cent and 4.1 per cent, respectively, since 2012.

Joseph Museruka, the managing director of the sacco, said that the recovery seeks to engage fellow teachers, who will earn a commission equivalent to 20 per cent of the value of the recovered assets.

“This is a challenge we are facing,” said Mr Museruka, “because some teachers abscond from duty during the year for different reasons and some get new jobs while others are relieved of their duties and disappear without repaying the loans. We are trying to resolve the problem using other teachers because some of them live very far from where they borrowed the loans but they can be tracked by their colleagues.”

According to Mr Museruka, the decision was taken after realising that the cost of recovering the debts was becoming unbearable, forcing the general assembly of teachers to agree on using other teachers in the recovery process.

“We have now tasked all teachers’ representatives up to the district level to help out in the recovery method,” he said. “We will motivate them with 20 per cent upon recovery of any given amount.”

Mr Museruka added that through the new system of recovery, some Rwf179 million had been returned to the sacco’s accounts by December last year.

Although the bank, through its different products, services its clients with lot of diversified loans paid using different modalities of reimbursement, at least all products are processed depending on security guarantees, he explained.

“The problem has not been with concessional loans or other type of loans but mainly with salary advances, because the teacher does not necessary have to provide a guarantee,” he added.

The ambitious six-year-old financial institution has so far lent up to Rwf87.3 billion to its members, with the biggest portion of the loan book invested in construction and small-scale businesses.

Teachers see the move as motivational despite the remaining challenge of a borrowing limit imposed to members due to financial constraints.

“For example, not until you form a group or a co-operative can you apply for a loan of Rwf100 million,” said Janviere Murerwa, a beneficiary of the bank’s loan portfolio. “The ceiling per one teacher, depending on a project, cannot go beyond Rwf3 million and with many conditions.”

So far, the sacco finances an individual borrower to up to 80 per cent of the budget, depending on the collateral security and the salary. According to a report from the sacco, since 2010 lending has progressively increased from Rwf3 million repayable in two years to Rwf15 million repayable over 15 years.

According to the report, since 2013 the maximum loan granted depends with the borrower’s financial capacity to repay, although upon fulfilment of the requirements a member can be advanced up to Rwf50 million. It adds that since 2010 the sacco reached its profitability zone, having made Rwf1.4 billion alone last year with permanent savings having grown up to Rwf9.2 billion from five per cent of the member’s net monthly salary.

Out of the 50,038 teachers whose salaries are paid through Umwalimu, 91 per cent have loans. Others are paid through other financial institutions because they have commitments there.

The teachers co-operative, which offers a variety of loans, previously reduced the rate at which it lends by three per cent in a move meant to allow more members to access loans.

It reduced its interest rate on loans from 14 per cent to 11 per cent to help teachers who get their payments from the government budget line.

Last year but one, the co-operative of more than 75,000 active members was boosted with $8 million (Rwf5 billion) to its coffers on top of a normal running lending capital estimated at around $64 million (Rwf40 billion) per year.