Bank of Uganda has issued an exceptional permission allowing Supervised Financial Institutions-SFIs, at their discretion, to offer a repayment credit relief to their creditor in the Education and Hospitality Sectors.

The said SFIs include commercial banks, credit institutions, and microfinance deposit-taking institutions. Previously, authorities at the Bank of Uganda had announced that COVID-19 related credit relief and Loan Restructuring Measures that were put in place from April 1, 2020, would expire and not be extended beyond September 30, 2021.

Despite the notice, the central bank had pointed out that on a case-by-case basis, it would place policy interventions for sectors that continue to remain under lockdown. But, when the September deadline elapsed, BOU didn’t give fresh guidance with banks mounting pressure on their respective borrowers.

The pinch was hitting the hospitality and education sector with the latter being much affected due to the continued school closure that has left several loans acquired by schools from banks unpaid with accumulated interest.

With concerned parties mounting pressure, Tumubweine Twinemanzi, the executive director supervision at bank Uganda, has issued guidelines on repayment credit relief that shall apply effective October 1, 2021, and for 12 months thereafter.

“In the 12 months to September 2022, SFIs are permitted to grant one restructuring to credit exposures in the education and hospitality sector that are adversely affected by the pandemic,” Twinemanzi’s letter dated November 1 reads in part.

Twinemanzi further explained that the restructuring can be in the form of a repayment moratorium, extension of tenor, reduction on principal loan repayment installment, reduction of applicable interest rate, or a combination of the aforementioned options.

However, the executive director points out that customer protection must be prioritized with financial institutions ensuring full disclosure of the terms and conditions of the restricted credit facility.

To ensure financial stability and enable financial institutions to enhance reliance, Twinemanzi notes that the central bank is going to maintain the covid19 liquidity assistance program as well as the restriction on payment of dividends and other discretionary payments.

Hasadu Kirabira, the Chairperson of the National Private Educational Institutions Association, (NPEIA) says the move will give them some breathing space. He, however, notes that it might not be the ultimate solution to the distress mainly of people in the education sector.

“We still advocate for the Education Sector Recovery Fund which is long-term in nature to spread the loans and give our institutions a long time, between 8 to 15 years to repay their loans. that can be a better deal,” says Kirabira.

Previously, a similar proposal was made by the Executive Director of Uganda Bankers’ Association (UBA), Wilbrod Owor during his engagement with Parliament’s Education Committee regarding the effects of the Covid-19 pandemic on the education sector and measures to address them.

Owor told the committee that the proposed Education Sector Recovery Fund can operate under the Bank of Uganda (BoU) with funds sourced from World Bank, International Monetary Bank (IMF), and others.  He, however, warned that not only the education sector needs it but it will also cushion the financial institutions carrying the non-performing loans which is a threat to their capital.