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Financing boda-bodas in Uganda: Where banks say no, this entrepreneur says yes

There are at least 100,000 motorcycle taxi (or boda-boda) drivers in Kampala. Most do not own the motorcycle, and instead use a large portion of their earnings to rent them from a ‘landlord’ – never quite managing to save enough to buy their own.

Tugende's model is simple: responsible drivers are identified who pay the company typically 15% more a week than they would if they were renting the motorbike. And in 18 months or less, they become owners.

Tugende’s model is simple: responsible boda-boda drivers are identified who pay the company typically 15% more a week than they would if they were renting the motorbike. And in 18 months or less, they become owners.

In 2006, first-year journalism student Michael Wilkerson discovered this when he ventured out of the US to do his summer internship at the Daily Monitor in Kampala. During his stay he travelled to cover stories for the newspaper using boda-bodas, and soon became friends with some of the drivers.

He was just 19 at the time, and admits that prior to his visit he would not have been able to point out Uganda on a map. But by the time he completed his internship, the country had hooked him. He knew he had to return, and he did. Today he calls Kampala home.

The city’s boda-boda industry and its drivers also left a lasting impression, and Wilkerson is one of the founders of Tugende, a company that offers a lease-to-own model to help Ugandan boda-boda drivers own their own motorcycle.

The model is simple: responsible drivers are identified who pay Tugende typically 15% more a week than they would if they were renting the motorbike. And in 18 months or less, they become owners.

Doing what the banks won’t

According to Wilkerson, boda-boda drives can make around US$60 to $70 a week, with about half of this going towards paying for the rental, fuel and maintenance of a bike. Since most are providers for families, they struggle to save enough to buy their own bikes, increase profits and ultimately improve their overall economic circumstances.

Boda-boda drivers are also typically ‘screened out’ by banks, as they usually do not meet the formal requirements nor have the collateral to qualify for loans.

However, it is a lot easier to qualify for Tugende’s lease-to-own model. Firstly, potential recipients have to already be a boda-boda driver and have a family member sign as a reference. They then undergo a brief safety and security course, as well as training in customer service and basic financial management.

There is a long waiting list for Tugende’s motorbikes, and Wilkerson noted the company has had to make tough decisions and turn down people. However, Tugende already has close to 800 drivers currently paying off motorbikes and over 200 who have finished payments and become owners. The business also has some returning customers.

“We love repeat customers; we put them at the top of the waiting list. It’s sort of like doubling down on a good bet,” he told How we made it in Africa.

Repayments in a high-risk industry

With no collateral required to qualify drivers for the lease-to-own model, Wilkerson is often asked what incentive drivers have to meet their weekly payments.

The answer: the opportunity of owning their own motorbike, of course. “Our best protection against challenges is making sure that it’s a good deal for the driver.”

While drivers do pay more per week for the motorbike than if they were renting, there is a very clear pay-off – final ownership. Those that do not meet their payments, risk having the motorbike ‘repossessed’.

“Most pay on time because they want to own the bike and take home all of the money. On a weekly, monthly basis they can essentially double their take-home money [once owners].”

Furthermore, drivers can choose which motorbike they would like to lease (and eventually own) through Tugende. This allows them to select the brand of bike they prefer.

“At the end of the day we want people to feel proud, happy, confident. So we think it’s important they get to choose their motorbike,” Wilkerson added.

But there are other ways that Tugende reduces the risk of non-payment. Boda-Boda drivers are usually organised into co-operatives, or ‘stages’ as Wilkerson calls them. They have a government-type structure headed by a chairman.

“The industry in Kampala in particular is surprisingly-self organised, it’s really amazing actually.”

He explained these “stage chairmen” can also sign as references for the driver. And this, along with a home visit, ensures the Tugende team can better track down drivers if there are payment problems.

The company has also employed managers who know the boda-boda industry well, and are good at assessing reputations of drivers. In fact, Tugende’s very first customer is now one of the company’s managers.

Allowing payment via cash

Tugende makes use of PayWay, a point of sales company in Uganda, to transfer weekly payments for the motorbikes. It allows drivers to go to any PayWay agent and enter their mobile phone number into a system. They can then pay their bill using cash, and PayWay then transfers this electronically to Tugende.

This means that drivers do not even need a bank account to make payments.

Expanding to rural towns

At the moment, Tugende is struggling to keep up with the demand in Kampala alone, but they have managed to also expand to the western Ugandan town, Mbarara, and already have 150 customers.

Wilkerson sees potential for his motorbike lease-to-own model in rural towns as well, not just for the boda-boda industry, but to address the agribusiness industry as well. “Because farmers and traders use these bikes to move produce and other goods from farms to trading centres, and if we can help with that, we will,” he commented.

The company will also look at other countries, but only after better meeting demand in Uganda.

Rwanda is one country Wilkerson is particularly interested in because of the business-friendly environment. He noted it is also generally more expensive to rent a motorbike in the country, meaning Tugende’s business model should do well.

And he also has an eye on western Kenya, northern Tanzania and South Sudan. “South Sudan has tonnes of boda-boda drivers because there’s not a lot of other formal transport options.”

However, he added that expansion to these countries will critically depend on whether the company has found a reliable person they trust to manage these markets for Tugende.

“It’s really important for us to have somebody from those expansion areas leading it because they understand the people and the conditions better than we do,” he added.

“And that’s true for our expansion within Uganda by the way.”

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  • Victor Nyorani

    Wow! This is awesome. Why doesn’t someone do something like this for online writers in Kenya. Am an online writer and I started off without a computer. Fortunately, there was a library in Ongata Rongai town, where I went daily and paid a small fee – less than what cyber cafes were charging. If someone can create such a service, whereby people interested in online writing get computers and pay for them weekly, I think it will work. The service would also require training in online writing, and based on my experience, the computer can be paid off within the same period as this motorcycle venture.

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