Perceived socio-economic benefits of informal borrowing among beneficiaries of informal money lending services : a study of money lenders in Busembatia Town Council, Bugweri District

Abstract

The purpose of this study was to explore the perceived socio-economic benefits of informal borrowing among beneficiaries of informal money lending services in Busembatia Town Council, Bugweri District. Specifically, the study aimed to examine the benefits experienced by borrowers, the factors influencing access to informal loans, and the challenges faced during loan repayment. The study used a case study research design employing a qualitative approach. Data were collected from 15 purposively selected primary participants and three key informants through in-depth interviews. The study findings revealed that informal loans play a significant role in supporting business growth, enhancing investment capacity, meeting household needs such as education and healthcare, and providing financial support during emergencies. Borrowers also reported psychological empowerment from having reliable access to credit. Access to loans was influenced by requirements such as provision of national identity cards, guarantors, and geographic proximity to lenders. However, challenges included daily repayment pressures, high interest rates, aggressive debt collection practices, and risks related to collateral and document retention, which negatively impacted business sustainability and borrower wellbeing. Finally, the study recommends promoting financial literacy, encouraging flexible repayment plans, enforcing ethical lending practices, and enhancing borrower protections to maximize the benefits and reduce the risks associated with informal money lending.