Uganda: saving schools from loan dilemma, banks tell government


The banking sector, under the umbrella of the Uganda Bankers Association (UBA), has said it “is not interested in selling” distressed school properties, urging the government to come up with a financing mechanism instead of advise homeowners to sell their properties to settle their debts.

Speaking in an interview on Tuesday, Mr. Wilbrod Owor, executive director of UBA, told Daily Monitor that education is a public good and a tool for training human capital, the well-being of which should be a concern of both government and individual citizens.

“Banks are not interested in taking over schools and selling them. We would like to see them work. That is why it is important that we have a financing mechanism before we think about selling properties,” he said. said, noting that even though banks choose to sell properties, the market is extremely volatile.

“Property values ​​have generally gone down. So the sellers and buyers of schools are not making any money. It is important to have a financing mechanism to save the education sector,” he said. -he declares.

Earlier last week, Finance Minister Matia Kasaija advised struggling owners of educational institutions to sell some of their properties to pay off debts, some of which have accumulated over the past two years.

Schools have been closed since March and the gradual opening was suspended in June due to an increase in Covid-19 cases.

A senior banking executive, who preferred anonymity to speak freely, told Daily Monitor that for the first time in more than three decades, the government should take an interest in what is happening in the education sector by creating first an education stimulus fund to save the sector from collapsing.

The fund, he said, will not only save schools, but relieve banks of the accumulation of non-performing loans and help the government to mitigate risk aversion in the banking sector.

The Fund, which is expected to benefit from different sources of funding but led by the government and managed like the Covid-19 Response Fund, according to the bank executive, is initially expected to seek to raise around $ 300 million administered by the Bank of Uganda, of which some should be made available to educational institutions on preferential terms.

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

The funding model is structured so that banks can assess and submit distressed portfolio exposures to the Central Bank for further funding.

However, the model also takes educational institutions into account by providing them with a window through which they can request relief or request access to credit to resolve cash flow issues.

Media reports also indicate that schools have already submitted a Shs 2.5 trillion bailout request to President Museveni which has yet to be considered.

A source familiar with the model presented to the finance ministry, who spoke on condition of anonymity, said the Education Stimulus Fund, if established, will benefit from short-term loans of up to 24 months. to help schools cover costs such as salaries, maintenance and other related costs. .

“The proposal sets up a medium to long-term stimulus fund of up to eight years to cover mortgages and structural changes,” said the source, who is also a leading banker, noting that banks also suggest the creation of a structured negotiable instrument. as a five or 10 year bond to meet government revenue challenges.

According to data from the Bank of Uganda, in March 2021, a significant share of non-performing loans in construction and real estate, which stood at 57.4%, resulted from non-payment of loans from institutions of education.

Distressed

For two years now, banks have been welcoming educational institutions in difficulty as part of the Credit Relief Initiative created by the Bank of Uganda to rescue clients facing cash flow problems.

According to data from the Bank of Uganda, restructured loans currently in default of at least one tranche, many of which are in the real estate and services sector, reached Shs 995.6 billion in April from Shs 764 billion. by Shs.

Within the service sector, education and tourism, which have a high multiplier effect and a high value chain, have suffered the greatest shortcomings, raising concerns for the banking sector.

The government still does not know when it will reopen schools, which involves vaccinating all learners and teachers.



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