Chewing on denim jackets is better than taking mortgages in Uganda

I don’t know if some of you have seen the recently renovated Constitutional Square Gardens, but if you haven’t and you finally see them, right in the middle of them, where the green grass is turns into a concrete driveway, there’s where I’d chew on a denim jacket before taking out a mortgage from a Ugandan bank.
Don’t get me wrong, denim jackets aren’t a fantastic delicacy, but on a menu with Ugandan mortgages, they’re not only attractive, they’re the best option.

Ugandan mortgages share two common aspects; they have a term of 20-25 years at many banks and are usually priced with an interest rate of 18-25% depending on the bank you choose. In the rare event that the sun rises early, Housing Finance, a bank partly owned by the Ugandan government, offers an interest rate of 16%.
There are many ways to approach the problem of mortgages in the country, but none will be as important as the cost of money. The cost of raising funds for mortgages and distributing that money and recovering it at a profit determines, in large part, how the banks arrive at their atrocious and execrable interest rates.

It is currently estimated that there are approximately 10,000 active mortgages in the country. If each mortgage is valued at 200 million shillings on average, that’s 2 trillion shillings of other people’s savings floating around. The banks can only lend according to the savings made on their drawings. So that must be 2 trillion shillings in savings.
Mortgage lending only improves in countries with a high savings culture; and currently the best mortgages at least by estimation are issued in Japan, Finland, Denmark etc….
The cost of money in these countries is cheap due to the high savings cultures of these countries. It’s no wonder, then, that when World Savings Bank data relates to GDP, these countries again come out on top.

But the second, equally important point is that countries can only improve their culture of saving by improving the economic conditions of their people and increasing their life expectancy. It is important to stay on earth long enough. Not only do you see a lot, but you also do a lot and earn a lot more money.
In Uganda, with a lifespan of 63 years, it can be difficult to convince a bank when you are 40 years old [The average age at which people take on mortgages] that you will give them their money back in 25 years. When all the data on the books shows that your income will decline, a hospital bill will make your income absent, and your death will tear the family apart in squabbles over your wealth.

These things that we don’t know about in this country largely determine how risk profiles are set, they determine how people put their money in the bank for a long term stay and also determine how the rate of final interest on the mortgage is established.
This is why some, including your columnist, have pleaded against mid-term access and also continue to plead for the early retirement of civil servants and private sector employees.
URBRA’s recent effort to get 50% of the pension as collateral for mortgages seems like a valid argument, but overall it’s bad economics and will do very little to reduce the risk of mortgages.

All data and science show that better well-being in education and health produces better living conditions and guarantees longevity of life, that longevity guarantees longer saving periods which then serve reduce the risk on the money lent. The government doesn’t have to believe me on this, it just has to choose the data collected by the Bank of Uganda on lending practices.
But also, if you live long enough, denim jackets are out of fashion and you don’t have to chew them up in Constitutional Square.

About Wanda Dufresne

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