Is the interest rate too high? My perspective from the back of a motorcycle.

To understand the interest rate that Pearl Microfinance charges its clients takes more than a brief look at a few numbers.

If you ask someone at Pearl what the interest rate is on Pearl loans, they will tell you “2.5%.” This means that there is a 2.5% per month interest rate. 2.5% interest is charged on the original loan amount rather than the balance remaining – in technical terms this is a flat interest rate rather than a declining interest rate. With a flat interest rate, over in a year, the clients would be charged 30% of the original loan size, and with the declining balance interest rate, they would be charged 16.25% of the original loan size.

These seem like very high numbers, but since the vast majority of the loans that are posted to Kiva’s website have 3 or 4 month loan terms the total interest paid ends up only being between 7.5% and 10%. To me, after a long motorcycle ride last Monday, this seems reasonable.

On Monday I went to visit the borrowers of Mityana, Uganda. Mityana is a mid-sized town that is about 50 km west of Kampala.

A few minutes after reaching the office, the credit office (CO) who was to take me to the field that day roared up on his motorcycle and came rushing in, very apologetic for not being there to greet me when I arrived. After welcoming me, greeting me, asking after my family, and all the people in Kampala, the CO asked me, “Are you really coming with me to visit the group today?”

This should have been a warning signal of what was to come, but since many Ugandans fear that I will not be able to manage things like carrying my own bag I tend to insist that I can do whatever people are asking of me (yes, this does result in me trying to do things that I definitely can not do – like chop an onion with a dull knife while holding the onion in the palm of your hand, but who can do that?!?).

The CO insisted that we take lunch before going because the place we were going was “very far!” So we took lunch and then sat around in the office waiting for the executive members of the group we were to visit to finish getting the money from the bank. At PEARL, the executive members of the community banking groups are responsible for carrying the cash to and from the groups. While we sat around, I played with the youngest member of the office, the 3 month-old baby of the office assistant.

About 45 minutes later, the CO started preparing me for the journey. He insisted that I wear a huge raincoat that he must borrowed from a local muscle-builder – and a helmet that looked as if it had been through a few crashes. I got on the back his motorcycle, and we set off.

After about 10 minutes on the road, the CO pulled over and asked me if I would sit “like a man.” I was sitting side saddle since I was wearing a long (cream colored) linen skirt, but I feared that he was asking me to sit “like a man” for my safety, so I swallowed my pride, hiked up my skirt, and tried to find a way to throw my leg over the side without traumatizing the children who had gathered to observe the scene.

Usually before getting on the back of any motorcycle I tell the driver – “Mpola mpola – kale?” Which roughly translates into, “Go slowly, ok?” This usually has the effect of making my driver practically fall over since almost no white people who live in Uganda take the time to learn even a few words of Lugandan, but more importantly – it usually does makes the driver go slowly. Since the CO was a co-worker, I did not feel that I could tell him to go slowly – and he did not.

For the next hour, we traveled up and down hills that were at about 45 degree slopes on roads that were not only unpaved but seems to be covered with about 4 inches of dust. There were a few brief periods where I did not fear for my life. Eventually the road flattened out, which meant, much to my dismay, that the CO increased his speed.

Then we came upon the “road repair”…

The “road repair” was an area where HUGE piles of sand, that I am assuming were going to be flattened later, had been dumped in the middle of the road at about 8 foot intervals. The piles were about 6 feet high (I could not see over them), and they spanned the entire width of the road, except about 1 foot on one side – and the side where there was small passable area was not always the same side, which meant that was virtually impossible to continue down the road. The CO tried to drive his bike very slowly, often having to put his feet down and push off the side of the heaps of sand.

We kept almost falling over but the CO seemed unconcerned. I was very concerned.

When my skirt ripped, I was even more concerned, and when the back wheel skidded out beneath me, I got off – that is the graceful way of explaining how I ended up off – and started walking.

We eventually did reach the group (the Lubajja Traders), and it was wonderful. The interviews were fantastic, and the scenery was stunning. There was a school next to where we were meeting was having music class so they were singing and dancing around. This combined with the sight of the lake near by, and smell of the tropical greenery almost made me forget that I would have to make a return journey similar to my first experience…

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On the way back to town, the CO seemed to be driving even more recklessly. After almost completely wiping out a few times, we came upon a large obstacle, and I told the CO to stop so that I could walk around it, and he drove off eventually going out of sight…

I wondered if he had misunderstood me. Maybe he thought that I had had enough, and that I thought I could just walk the rest of the way. There was a truck up ahead, maybe he thought I would just try to hitch a ride with the truck. I wondered what exactly I would do if he had left me here to find my own way… I was hours away from town by foot and there was no way I would make it before it was dark.

So… I just kept walking, hoping that he would come back… I walked trying to hold the tear in my, now filthy, skirt closed, with a huge helmet squeaking on my head, sweat soaking through my shirt under my oversized rain coat, and limping slightly since my sandal had broken and cut my foot one the times that we had fallen. From under my helmet, I could still hear the children’s voices calling out, “Bye Mzungu!” and although I knew it would make me look even more crazy – I couldn’t help it – I started laughing out loud. I could not stop laughing. I kept thinking what a funny picture I must have made. I am sure that the story of the Mzungu who thought she needed to wear a helmet to walk in Uganda will be told for weeks.

Then and there I decided that, had there been a way to make a video of that day without killing myself, I would have made the phrase “10% interest” scroll across the bottom of the screen.

The cost of bringing financial services to these borrowers is incredibly high. In addition to the financial and physical cost, the CO’s are incredibly stressed by such work. The CO was clearly exhausted at the end of the day – by the way, he did come back for me and he had found a short cut that allowed us to avoid the “road repair” section – but he missed his evening classes at the university he attends. It is important that the staff at PEARL feels appreciated for the difficult tasks they undertake! 10% interest seems a reasonable charge.

In order to make a judgment about the interest that PEARL charges, it seems you must take a good look at the numbers, meet a lot of borrower groups, and then go for a ** insert an adjective that properly describes the above experience** ride on the back of a motorcycle. Then, and only then, can you begin to understand the complexity of PEARL, at least in terms of interest.

Note: Mzungu is what many people in East Africa call Whites.

~~ Please join the lending team for Pearl Microfinance. Our hope is to use this team to help you connect more to the borrowers, staff, and Kiva Fellows at Pearl Microfinance! Watch the video below to see some of the sights along the roads of Uganda (none of the footage is from my trip to Mityana…)~~'

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