UGANDA: PRESIDENTIAL DIRECTIVE TO RATIONALIZE THE MICRO-FINANCE SECTOR CURRENTLY BEDEVILLED BY A MULTIPLE REGULATORY QUAGMIRE

Museveni directs Finance Minister, AG on Micro-Finance regulation

File Photo/Courtesy: Minister of the Presidency minister Babirye Babalanda delivered Museveni’s message at the close of a two day National Micro-Finance and Savings Groups Conference 2024

Kampala, Uganda | THE INDEPENDENT |  President Yoweri Kaguta Museveni has thrown his weight behind medium and small financial sector players demanding a one stop regulation centre, saying that multiple centres lead to confusion in which gullible Ugandans may be abused and exploited.

The President whose message was delivered by the Minister of the Presidency minister Babirye Babalanda at the close of a two day National Micro-Finance and Savings Groups Conference 2024 at Hotel Africana on Friday evening, directed the minister of Finance and the Attorney General to deal with the issue as soon as possible.

Under the different laws governing financial institutions, savings and credit cooperatives (SACCOs) report to the cooperatives regulator, the Uganda Microfinance regulator and in cases of SACCOs with capital above 1.5billion to Bank of Uganda.

The operational frameworks and conditions differ under the different regulation regimes, which some of the microfinance players complain are too harsh for them as small players.

But the President said, “That there are simply too many regulatory bodies with separate and sometimes contradictory mandates, the outcome is a confusing regulatory environment that suffocates rather than strengthens the sector. It leaves the population exposed to financial abuse.  Only robust, transparent and coherent regulation can produce microfinance institutions that serve the public honestly and effectively. … The Minister of Finance with the support of the Attorney General must deal with this matter as soon as possible.”

The conference themed on “Leveraging Collaborations, Partnerships and Promoting a Savings Culture to Foster Socio-Economic Transformation” brought together government, regulators, partners, experts and commercial banks and private sector players among other stakeholders from across the country and beyond.

The President made it clear that government’s duty to protect MFIs’ members and consumers against abuse and exploitation, added that he had directed the minister to issue an instrument to deal with the “unscrupulous” players because they are retrogressive to the industry.

The fountain of honour who applauded the microfinance sector role in supporting government’s financial inclusion strategy promised government and other stakeholders would continue making efforts to build capacity and business competencies of SACCOs with a view to sustainability and growth as vehicles to lift Ugandans out of poverty.

He also urged them to prioritise digitization of their services and strategise to grow their markets nationally and regionally.

On the current topical issue of corruption, the President re-iterated he taken time sounding warning to “public officers who pursue selfish and shallow interests” in the course of their duties and it was now time “deal with whoever has turned into a Ndiwulira (stubborn maize weevil).”

The conference was a precursor to the international cooperatives day celebrated on July to be nationally celebrated tomorrow at Kibinge, Bukomansimbi district.

Minister Kasolo extolled the President’s support to the microfinance sector through different programmes including EMYOOGA, PDM and other initiatives.  For this he assured minister Babalanda that those benefiting from the sector were focused and come 2026 (election year), they will voter rightly.

He said government would every year until 2040 invest shillings 1 trillion in the SACCOs until all Ugandans are included in financial service provision.  Government, he said, had decided to give a ten year tax exemption to enable them grow.

During the opening day deliberations there were calls by stakeholders to government to allow savings and credit cooperatives (SACCOs) to form an own bank in light of the special interests of the members. Minister of state for microfinance Haji Haruna Kasolo said he had no problem with it, “even if it means sacrificing the MSC.”

The centre is a government special purpose vehicle incorporated in 2001 to offer affordable development grants and credit to small enterprises and help in capacity development of the beneficiaries and their members.

The cooperative bank, he said would be convenient for the SACCOs and MDIs as big investors continued to access credit through different facilities at Bank of Uganda, the Uganda Development Bank (UDB) and commercial banks.

The commercial banks, according to SACCO stakeholders charge very high interest rates and are more often inclined to the usual requirements of collateral, that SACCOs often lack. This translates into denial of access to credit to the small savers and cooperative credit groups.

The argument was amplified by  Tupalle Chandra Sekhar Reddy, a sector expert from India also, while giving experiences from his home country recommended that government policy should be enabling to allow SACCOs and MDIs federate into an own bank that responded to their special needs and circumstances.

Minister Kasolo said that government through its manifesto and other development frameworks, including the National Development Plan and the Vision 2040 looks at SACCO and MDIs as major partners to lift Ugandans out of poverty through access to affordable credit.  He said recent findings indicated 20million Ugandan Adults (81%) were financially included up from 14.3million (77%) in 2018 and part of this national success was through SACCOs and MDIs.

Stakeholders complained about the high Central Bank Interest Rate (CBR) is high forcing credit giver to also charge high interest.  But Bank of Uganda Acting Governor, Michael Ating Ego said this was partially driven by the government “borrowing appetite.”

Government borrowing, he said, made commercial banks look to government as a better client giving better interest and assured repayment.

Atingo also complained about justice delivery, where he said courts tied up too much capital in injunctive orders and delayed disposal of cases.  Up to shillings 6 trillion, he said was currently tied up in cases.

Stanbic Holdings Uganda Chief Executive Sam Mwogeza discounted the notion of commercial banks being indifferent to small credit clientele, saying this was reason Stanbic Bank had entered different partnerships that speak to government financial inclusion policy.

These, Mwogeza said included the Parish Development Model that the bank implements through its Wendi platform, digitization through Flexipay and the Economic Enterprise Research Fund.  To date he said 1500 SACCOs had accessed funds through Stanbic.

 Speaker Anita Annet Among whose speech was delivered by Rwamara MP Amos Kankunda (also chair of the Parliamentary Committee on Finance, Planning and Economic Development) underscored the importance of the SACCO movement and medium deposit taking institutions (MDIs) in augmenting government effort to help lift Ugandans out of poverty and pledged support to the sector.

This she said was reason the House passed the amendment to Micro-Finance Deposit Taking Institutions Act last year to enable the MDIs access credit reference bureau data in their due diligence on clients.   She said Parliament had appropriated an additional shillings 3billion to the Uganda Micro-finance Regulatory Authority (UMRA) to strengthen its work in supervising the sector.

She called on UMRA to in future consider taking discourses like the one at hand upcountry where the majority of stakeholder and beneficiaries reside or take some of the stakeholders outside the country to benchmark colleagues in the region who have made bigger strides.  She disclosed that in Kenya, SACCOs had become so vibrant that their mark today in notable in the taxi and real estate sectors.

Rachael Vanessa Muhwesi who represented the executive director of the Uganda Micro-finance Regulatory Authority said the regulator was working hard to cause mindset change because many of the players and beneficiaries needed this for capacity building and sustainability.

****

URN

SUPPLEMENT

TENETS OF TRUST LEGACY

GLOBAL SOUTH ALERT: TRUST FROM SINCE MEDIEVAL ENGLAND, TO BEYOND AMERICAN DECLARATION OF INDEPENDENCE ON JULY 4, 1776.

TAGLINE: "TREASURE THE PEARL , RIDE SPECIAL MOBILITY."

LINK: iSpecial Mobility Ecosystem

VISION STATEMENT: "WHOLE BUSINESS SECURITIZATION (WBS) FOR AFRICA AND BEYOND."

🌐 iSpecial Mobility Ecosystem

PUBLIC-PRIVATE SECTOR TO BLAME FOR A YAWNING DOUBLE-DIGIT GAP BETWEEN THE INFLATION RATE AND THE PRIME COMMERCIAL LENDING RATE AVERAGING OVER 12% APR BENEFITING BANKS AMONG OTHER LENDERS

Govt , Borrowers share blame of high interest rates, says Ggoobi

What you need to know:

monitor.co.ug, July 19, 2024 | Permanent Secretary and Secretary to the Treasury Ramathan Ggoobi has said that both government and borrowers are to blame for Uganda’s high interest rates. 

Speaking during the second National Microfinance and Savings Group Conference 2024 in Kampala, Mr Ggoobi said that whereas some government actions partly contribute to high interest rates, the blame is equally shared by borrowers, some of whom are not creditworthy, untrustworthy, and lack good quality collaterals against which loans are advanced.  

For instance, he said, because government has been increasingly borrowing from the domestic market, banks have prioritised lending to government, while the private sector players who seek to access credit are subjected to high interest rates. 

However, Mr Ggoobi noted that government was working on a plan to mitigate domestic borrowing by focusing its attention on local revenue mobilisation, which would increase Uganda’s tax-to-gross-domestic ratio to at least 16 percent from the current 14 percent. 

“Our long-term strategy is to mobilise our revenue from taxes and reduce internal borrowing. We are also improving traceability of the borrowers by introducing national identification [and improving the quality of collateral by] improving the land register,” he said.

“Us as borrowers, we are not trustworthy. In most cases, credit is about traceability and the quality of the collateral. Banks like it when government borrowing increases because they have a better borrower,” Mr Ggoobi added, noting that financial institutions see government as a non-risk borrower compared to many private sector borrowers that easily default. 

While addressing the NTV-Absa Post Budget Dialogue last month, Mr Ggoobo said banks were sitting on about Shs27 trillion, noting that government was only borrowing the excess. 

However, he also indicated that government, despite public pleas, had continued to borrow from the domestic market “to save some of these banks”.

The share of domestic debt has been growing over time. As of December 2023, the stock of public debt rose to Shs93.38 trillion, of which external was Shs55.37 trillion, while Shs.38 trillion was domestic debt. 

Mr Ggoobi also indicated that government has put in place more measures to improve creditworthiness by working with Uganda Registration Services Bureau to register business borrowers, which will eventually improve the quality of information about borrowers.

“Interest rates have reduced. 10 years ago there was an average lending rate of 25 percent, today the average prime lending rate is a 17.7 percent. This is still high, [but] we are fighting to bring it to a single digit and that can be done by addressing the challenges,” he said.

The second National Microfinance and Savings Groups Conference 2024 sought to leverage collaborations, partnerships, and promotion of a savings culture to foster socio-economic transformation.

Monitoring borrowers

State Minister for Microfinance Haruna Kasolo, urged banks to monitor people who they lend money instead of waiting for them to default. 

“Banks should not wait for businesses to collapse. They collect 2 percent of the loan for monitoring. They should use it to visit and advise businesses rather than celebrating when they fail for them to auction mortgaged properties,” he said, noting that government has through the Parish Development Model extended Shs2 trillion with each PDM Sacco across the country. 

Mr Kasolo also indicated that government last year launched the Second National Financial Inclusion Strategy (2023-28) to combat poverty and spur economic growth through accessible financial services.

“This conference marks a crucial step in promoting collaboration and knowledge exchange within the microfinance sector, paving the way for a more inclusive and digitally empowered financial ecosystem,” he said. 

SUPPLEMENT

TENETS OF TRUST LEGACY

GLOBAL SOUTH ALERT: TRUST FROM SINCE MEDIEVAL ENGLAND, TO BEYOND AMERICAN DECLARATION OF INDEPENDENCE ON JULY 4, 1776.

TAGLINE: "TREASURE THE PEARL , RIDE SPECIAL MOBILITY."

LINK: iSpecial Mobility Ecosystem

VISION STATEMENT: "WHOLE BUSINESS SECURITIZATION (WBS) FOR AFRICA AND BEYOND."

🌐 iSpecial Mobility Ecosystem