How Most Ugandans Misuse Money Borrowed From SACCOs and VSLAs

How Most Ugandans Misuse Money Borrowed from SACCOs and VSLAs

SACCOs and VSLA groups are among the most reliable lending associations across Ugandan communities due to their fast, simple, and trustworthy systems of operation among members. Some of the best-performing VSLAs include FORWODE women’s group in Amuria District. These organized groups are well positioned, with about 60% of people in rural areas borrowing and saving through them. Members acquire startup capital or borrow to boost their business capital if they already have an enterprise.

This sounds great, but occasionally many people experience serious setbacks that destroy their hope for income returns and smooth loan repayment.

There are 8 ways money is handled in the wrong way. Some are intentional, while others are done without someone’s knowledge.

1. Tendency of Cheating Members Technically

This is one of the most embarrassing tendencies among some members in higher positions. Most SACCOs, especially VSLAs, are located in rural areas where borrowers may unknowingly be charged slightly higher interest rates or face manipulated calculations beyond their understanding. This is illegal and against SACCO laws, but some members are illiterate and do not understand standard calculations.

Last year in Abuket Saving Groups, one group leader intentionally charged a higher interest rate of about 0.1% on top of the agreed rate of 8%. That small increase was intended to help him clear his personal loan within the same group.

2. Copying and Duplicating Ideas

This is one of the most dangerous forms of loan misuse. It occurs when people rush to copy successful projects and businesses without understanding how they truly operate. The best option to avoid this is through proper research and consultation with experienced individuals in that business.

For example, in the smoked fish business, one needs to understand legal fish sizes, pricing, and distribution channels. Failure to do so leads to losses.

3. Cultural Beliefs (Mostly Myths)

Culture plays a big role in business in Uganda. Borrowing existed even in ancient times through livestock lending. However, myths still exist in communities which discourage borrowing, such as claims that loans cause loss of ancestral land or create overwhelming debt pressure.

These beliefs often affect young, ambitious people who fail to understand loan management and proper use of borrowed funds. Such myths can be addressed through exposure, role models, and youth workshops on income generation. As a result, cultural myths have reduced youth participation in risk-based business activities, as many fear investing borrowed money.

4. Competition Among Borrowers

Many SACCO and VSLA members have developed unhealthy competition. This leads to borrowing funds for social comparison rather than clear business purposes.

Borrowers often fail to ask critical questions such as:

• Why am I borrowing?
• How will I repay?
• Do I have experience in this?
• How productive is my idea?
• What repayment plan do I have if things fail?

Instead, people are influenced by others. If someone borrows UGX 10,000,000, others rush to demand the same amount without assessing their readiness. The best strategy is to understand your own enterprise.

5. Arrogance of Borrowers

Many people in the community display this dangerous trait, especially individuals with low education levels. This prevents them from consulting professionals or organizations that provide guidance on credible lenders, proper use of income, and financial management.

Most individuals rush into borrowing and later realize they are overwhelmed. It is better to accept advice and learn, as this leads to wiser financial decisions.

6. Digital Literacy

In today’s modern age, much of the money is handled electronically. However, this requires digital knowledge, which many local people lack. As a result, some members are easily cheated during transactions.

To address this, SACCO groups should identify a trusted individual who can assist others with digital transactions. For example, if a member is purchasing secondhand clothes through online orders from Kenya, they should be guided through M-Pesa transactions and procedures at a low cost or free of charge.

7. Unrealistic Projections and Timing

This issue arises from lack of experience and limited research. First-time borrowers are most affected because they often set very high expectations and unrealistic timelines.

When results delay, they panic and frequently change decisions, leading to losses and difficulty in repaying the loan. It is important for individuals to build strong mental resilience and avoid being easily discouraged.