Grapevine

Banks prefer land as security

Majority of business loan applicants stake land as collateral to access credit, according to the Bank of Uganda Credit Demand Survey Report for the 12 months to June.

The report, which surveyed 90 business entities out of the targeted 109 within and around the Kampala Metropolitan Area, representing a response rate of 82.6 percent, indicates that in the four quarters between June 2023 and June 2024, land dominated collateral options for most loan applications.

During the period, land formed 43.8 percent of collateral options in three of the four quarters, but reduced to 36.4 percent in the three months to April 2024, which represented an annual average of 42 percent.

“In terms of collateral requirements, 43.8 percent of respondents [in the three months to June 2024] used land to secure the loan,” the report reads in part, noting that other collateral options included buildings and accounts receivables, among others.

The choice of land by financial institutions and borrowers as the most used collateral option relates to its importance as a valuable immovable asset, whose potential to appreciate, makes it important in the credit value chain.