mfis in uganda
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Structure of the presentation
1. Typology of Ugandas Financial Sector
2. Definition of Microfinance
3. Role of Microfinance
4. Microfinance institutions in Uganda
5. Clients of Microfinance Institutions in
Uganda
6. How Microfinance is delivered7. Terms and conditions for delivering
microfinance in Uganda
8. Issues in Microfinance Industry
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Ugandas Financial Sector
Formal: Licensed and Supervised by BOU
Semiformal: Registered as legalorganisations but not Licensed and
Supervised by BOU
Informalnot registered as legal bodies
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Formal Financial Institutions
Central Bank: Monitory policy formulation &
stability of financial sector
Money markets: short term financing-banks,
credit institutions, MDIs, Devt banks etc
Capital marketsshares, bonds etc
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Semiformal Financial Institutions
SACCOS
Private companiesmoney lenders
NGOs
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Informal Financial Organisations
Saving clubs
Investment clubs
Friends and relatives
Traders and shopkeepers
Informal money lenders
Etc
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Financial Sector
Financial institutions, products and rules
and regulations governing the sector
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Development of the Financial
Sector in Uganda
No. of financial institutions
No. and variety of financial products Legal status of Fis
Outreach of Fis
Operational efficiency of Fis
Effectiveness of FIS
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Definition of MF :The BOU Perspective
Microfinance Line of business
a principal business of-
(a) acceptance of deposits ;
(b) employing such deposits wholly or partly by lending orextending credit for the account and at the risk of the person
accepting those deposits, including the provision of short term
loans to small or micro enterprises and low-income households,
usually characterized by the use of collateral substitutes, such as
group guarantees or compulsory savings;
(c) transacting such other activities as may be prescribed
by the Central Bank;
Source :MDI Act 2003
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Key Issues in the Definition of
MF for Ugandas Context All involve offering financial services(both credit
and savings) to the low income people, who facediscrimination and difficulty from accessingfinancial services from formal financialinstitutions
Emphasizes both micro savings and microcredit
Two types of Microfinance Institutions: Regulated (with public deposit mobilization and
intermediation and supervised by BOU)
Non Regulated (without public deposit mobilization and not
supervised by BOU.)
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BOU Policy on MFIs
Basic features
Encourages broadening & deepening of the
financial system
Attempts to provide a linkage between
established institutions and small outreach
organizations Key concepts: Outreach and sustainability
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BOU Policy on MFIs
Tiered framework
Tier 1: Commercial Banks (Min Capital -Shs.4bn)
Tier 2: Credit institutions (Min Capital -Shs.1bn)
Tier 3: Micro deposit-taking institutions (MDIs) (Min Capital -
Shs.500m)
Tier 4: Microfinance institutions (MFIs) that do not take
deposits (No BOU Set K-requirement) 1US $ is approximately Shs.1800
Capital is invested in assets approved by Bank of Uganda
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Why not regulate Tier 4
institutions (MFIs) Tier 4 institutions form a legitimate and
well appreciated segment of the MF sector
in Uganda Tier 4 are crucial to further outreach of the
MF industry in Uganda
Tier 4 provides a good learning process ofmanaging finances and developing asavings culture
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Why not regulate Tier 4
institutions (MFIs) Tiered approach designed to give tier 4
institutions an incentive to grow and
become sustainable before they upgrade totier 3 institutions
Regulating tier 4 institutions could stifle the
innovation, growth and outreach of MF inUganda
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MDI Act 2003
MDIs can:
Accept deposits from the public
On-lend these depositsMDIs cannot:
Engage in foreign exchange transactions
Operate current accounts
Use the term Bank in their name Onlend compulsory savings
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MDI Act 2003
To qualify for an MDI license: Company limited by shares
Proven track record in microfinance
Minimum paid-up capital of 25,000 currency points(currently one point is Ush20,000 or US$10)
Capital adequacy ratio of 15% of risk-weighted assets
No single owner with more than 30% shareholding
Any person holding more than 10% shares must beapproved by BOU
Senior management and board members must be vettedand approved by BOU
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Benefits of Regulation
For institution
Diversify sources of funding
Decreased reliance on donor funds/ whims
Increase services to clients/Professional image
Become more efficient and financially sound
Gain competitive advantage over non-regulated MFIs
For clients
Savings services Potential reduction in costs
For industry
Increased outreach to rural areas
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Role of Microfinance
Microfinance is a financial service for low
income entities or people:
Key roles include:o Production process and exchange
o Increasing productivity
oGrowing the economy
oAffording people exploit opportunities
oAcquiring basic needs
o Reducing vulnerability and creating confidence
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Who are the clients of MFIs
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Delivery Mechanisms in
Microfinance
Highly dynamic and institution specific!
Delivery mechanisms are practiced include:1. MFIIndividual
2. MFIIndividuals in Groups
3. MFIGroups4. Bank - MFIIndividuals, Individuals in
Groups or Groups
Ch i f D li M h i
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Choice of Delivery Mechanisms
Depends on a number of factors:
Birth place of MFIs ideas of providing microfinanceEnvironmental factors
Performance of the mechanism
Vision and Mission of MFI Economic activities and the community set-up
Regulatory framework
Size of MFI
Experience of clients with access to microfinance
services
Population density and cultural practices
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Terms and Conditions of Product
Delivery Interest rate ad method of calculating it
Loan size, maturity and payment terms
Collateral
Training
Joint liability group
Being economically active
Financing start-up or existing business
Providing a business plan
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State of Microfinance in UgandaPreliminary Findings of Census of MFI in Uganda 2006
In phase I, a total of 3,360 Tier 4 MFI Outlets inUganda was listed.
In phase II, a total of 1,248 Tier 4 MFI Outlets
was mapped.
In phase III and part of phase IV, a total of 741
MFIs and 1064 MFI Outlets have been found tobe eligible
MFIs and MFI Outlets under this study.
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State of Microfinance in Uganda
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State of Microfinance in Uganda
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State of Microfinance in Uganda
S f i fi i d
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State of Microfinance in Uganda
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Emerging Issues from study
Several MFIs exist in records of Governmentinstitutions, but not operational.
Substantial number of MFIs found eligible for
this census may not be viable.
There is widespread lack of qualified staff in the
MFIs.
This could be responsible for the poor recordkeeping observed in several MFIs.
Poor infrastructure, making it difficult to access
some MFIs
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Emerging Issues from study
Compilation of financial reports especially bySACCOs and auditing methods fall short of the
generally accepted international standards.
Several MFIs exhibit governance and
management inadequacies.
A number of SACCOs appear to have been
established to receive Government resources,
which is in conflict with the principle of
community resource mobilization for wealth
accumulation and creation.
Challenges of Uganda Financial
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Challenges of Uganda Financialsystem
Under banked- only 2.3 million accounts!!!
Bank dominated financial system. 4 foreign banks
account for 70% of total assets.
Disconnection between formal and semi formal/
informal financial.
Low domestic savings mobilisation-Uganda has the
lowest savings to GDP ratio in Sub Saharan Africa
Challenges of Uganda Financial
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Challenges of Uganda Financialsystem
The formal financial system largely excludes thepoor particularly in rural areas.
Poor people are mainly served by semiformal andinformal institutions which are weak and not
regulated, hence posing a risk to poor peoples
savings, which threatens the financial system.
Challenges of Uganda Financial
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Challenges of Uganda Financialsystem
Limited financial instruments (treasury bills)
Low return on savings due to high liquidity in
banks and donor funded wholesale funds for on-lending
Weak capital markets which further constrainsdomestic resource mobilisation.
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Challenges
The financial system in Uganda lacks
information and confidence about contracts.
Poor savings culture perpetuated by limited
access to safe and sound institutions,
confidence in the financial system etc.
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Challenges of MFIs
Lack of protection of savings of clients
Mistaken assumption that MF is a poverty savior
Politicizing MFI services during elections
Entandikwa
Week monitoring and supervision of MFIs
Over and Under regulation
High operational costs
lack of credit information
Underdeveloped institutions
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