LakeVictoria

Lac Muhazi

LakeEdward

LakeAlbert

LakeGeorge

LakeKwania

LakeKyoga

LakeBisina

Musoma

Butere

Kisumu

Kisii

Eldoret

Kitale

LokichokioTorit

Jubá

Yei

AbaFaradje

Bunia

Beni

Ruliengeri

Kyaka Bukoba

Lyantonde

Ntusi

Mubende

Mityana

Entebbe

Ntungamo

Kabale

Kasese

Kyenjojo

Hoima

MasindiButiaba

Pakwach

Atiak

Moyo

Kitgum

Gulu

Kaabong

Kapchorwa

Soroti

Tororo

Iganga

BusembatiaMbulamuti

Namasagali

Bombo

Jinja

Masaka

Mbarara

FortPortal

Lira

Arua

Moroto

Mbale

Kigali

Kampala

NorthBuganda

SouthBuganda

Southern

Western

Nile

Northern

Busoga

Karamoja

Central

Eastern

Tanzania

Kenya

Sudan

Rwanda

Zaire

UkereweIsland

SeseIslands

UgandaCountry-Level Savings Assessment

CGAP Savings Initiative

Rani Deshpande and Mark Pickens, CGAPHermann Messan, SIOM Consulting

April 2006

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CONTENTS

EXECUTIVE SUMMARY ......................................................................................................................................1

INTRODUCTION..................................................................................................................................................3

OVERVIEW OF THE UGANDAN FINANCIAL SYSTEM ..........................................................................................3

CLIENTS: DEMAND FOR DEPOSIT SERVICES.....................................................................................................5Savings Habits and Preferences are Relatively Well-Documented............................................................5Small Savers Hold Mixed Liquidity Preferences .......................................................................................6Low Formal Sector Penetration ..................................................................................................................6

MICRO: INSTITUTIONAL CAPACITY AND SUPPLY OF DEPOSIT SERVICES .........................................................7Overview of Deposit-taking Institutions in Uganda...................................................................................7How Do Ugandan Institutions Stack Up Against Demand? ......................................................................9Security and Accessibility: Tradeoffs, and Opportunities for Linkages ..................................................12

MESO: SUPPORTING INFRASTRUCTURE FOR DEPOSIT MOBILIZATION ...........................................................13Wholesale Funding and Liquidity Management Mechanisms .................................................................13Capacity-Building Resources on Deposit Mobilization ...........................................................................15Lack of Reliable Information for Consumers and Investors ....................................................................16Payment Systems and the Promise of Technology ..................................................................................16

MACRO: POLICY AND REGULATORY ENVIRONMENT......................................................................................17MDI Act and Implications for Rural Outreach ........................................................................................17Regulatory Vacuum for SACCOs ............................................................................................................18Getting the Recipe Right for New Delivery Channels .............................................................................19

STRATEGIES TO IMPROVE SMALL-BALANCE DEPOSIT MOBILIZATION IN UGANDA .......................................19

ANNEXES ......... ...............................................................................................................................................22Annex I: Summary Matrix of Findings and Suggestions .........................................................................22Annex II: Sources Consulted on Deposit Mobilization in Uganda..........................................................23Annex III: Map of Population per Branch of Deposit-Taking Institutions by District in Uganda ..........27

iii

LIST OF ACRONYMS

AMFIU Association of Micro Finance Institutions of UgandaASCA Accumulating savings and credit associationATM Automated teller machineBoU Bank of UgandaCDFU Communication for Development Foundation UgandaCGAP Consultative Group to Assist the PoorCOMESA Common Market for Eastern and Southern AfricaDFID Department for International Development (United Kingdom)EU European UnionFSDU Financial Sector Deepening Project UgandaGTZ Deutsche Gesellschaft für Technische Zusammenarbeit (Germany)ICT Information and communications technologyIFAD International Fund for Agricultural DevelopmentMDI Micro-deposit taking institutionMFI Microfinance institutionMIS Management information systemMoFPED Ministry of Finance, Planning and Economic DevelopmentMOP Microfinance Outreach ProgramMSCL Microfinance Support Center Ltd.PAR >30 Portfolio at risk rate greater than 30 daysRFSP Rural Financial Services ProjectROSCA Rotating savings and credit associationRural SPEED Rural Savings Promotion and Enhancement of Enterprise Development ProjectSACCO Savings and credit cooperativeSida Swedish International Development Cooperation AgencySUFFICE Support to Feasible Financial Institutions and Capacity Building Efforts

Project (European Union)UCA Uganda Cooperative AssociationUCB Uganda Commercial BankUCSCU Uganda Credit and Savings Cooperative UnionUWFT Uganda Women’s Finance TrustUGS Ugandan shillingsUMU Uganda MicroFinance UnionUSAID United States Agency for International DevelopmentUSD U.S. dollars

Uganda

iv

EXECUTIVE SUMMARY

This report summarizes the results of the fifth test of the Country-Level Savings Assessment Toolkitunder development as part of CGAP’s Savings Initiative. The purpose of the toolkit is to helpgovernment agencies, donors, and others identify opportunities and constraints in increasing poorpeople’s access to high-quality deposit services. The methodology examines client demand fordeposit services and the capacity of the financial system to meet that demand at three levels: financialinstitutions (micro), supporting infrastructure (meso), and policy (macro). It concludes withsuggestions for strategies to improve the quality and quantity of deposit services available to low-income households.

The report builds on the findings of CGAP’s 2004 Uganda Microfinance Sector EffectivenessReview, which highlighted the need to improve rural access to financial services and increase thesafety of poor Ugandans’ savings. Despite high awareness of client demand for secure, convenient,and affordable deposit services among microfinance stakeholders, usage of formal sector depositservices is extremely low, especially among rural Ugandans. The market appears wide open forinstitutions that can design cost-effective deposit services tailored to low-income savers’ preferences.

At the micro level, the primary obstacle is lack of secure deposit-taking institutions in ruralareas and extremely low density of financial service access points throughout the country. Linkagesbetween SACCOs and regulated institutions offer promise in this area; incentives and competitioncould also draw banks downmarket. At the meso level, resources for communicating institutionalsoundness, consumer education, and access to the payment system are under-developed. A largeamount of donor resources is poised to flow into wholesale lending facilities targeted at Tier 4institutions, with potentially negative consequences for SACCOs. At the macro level, the MDIAct has been a substantial investment in extending secure deposit services, but stakeholders areincreasingly aware of remaining challenges to rural outreach, including slowed pace of MDIexpansion, inadequate regulation and supervision of SACCOs, and lack of clarity on regulation fornew high- and low-tech delivery channels.

Seven strategies to improve small deposit mobilization in Uganda emerged from theassessment and warrant further research and reflection.

1. Create smart consumers of financial services by investing in financial literacy and acomplementary system for disclosure of pricing and performance by institutions.

2. Size the market and clarify client savings behavior to design competitive products byinvestigating the level of unbanked liquidity and clients’ risk, return, and liquidity profiles.

3. Link SACCOs that operate in rural areas to more stable, regulated institutions, channelingexcess SACCO liquidity to safer institutions such as MDIs, which are in need of deposits inorder to expand.

4. Invest in further developing new high- and low-tech delivery channels for MDIs and Tier1 and Tier 2 institutions with an interest in microfinance to engender increased access forsavers.

5. Explore innovative ways of managing SACCO liquidity to create low-risk, high-returninvestments that attract low-income people’s deposits into the financial system.

6. Promote active dialogue with BoU on new methods of increasing outreach and construct amutually-acceptable balance of systemic protection and expanded access.

7. Focus support to SACCOs on better monitoring, regulation, and supervision, rather thanon-lending, in order to build a more robust network of institutions that are both accessible andsecure under strengthened regulation and supervision.

Country-Level Savings Assessment

1

INTRODUCTION

This report summarizes the results of the fifthtest of the Country-Level Savings AssessmentToolkit under development as part of CGAP’sSavings Initiative.1 The purpose of the toolkitis to help government agencies, donors, andothers identify opportunities and constraints inincreasing poor people’s access to high-qualitydeposit services.

The toolkit examines evidence ofdemand for deposit services among low-income clients and identifies opportunitiesand constraints to meeting that demand. Itexamines three levels of the financial system:(1) the capacity for small deposit mobilizationamong financial service providers (“micro”level); (2) financial infrastructure and second-tier support for micro-level institutions (“meso”level); and (3) public policies and governmententities that create an enabling environment forsavings mobilization (“macro” level). It con-cludes by identifying promising strategies toimprove the quality and quantity of depositservices available to low-income households.

The assessment draws on (1) analysis ofexisting studies and information on demandlevels, institutional capacity, and the macroenvironment in Uganda (see Annex II for thelist of documents consulted); (2) interviewswith 67 informants related to small depositmobilization in Uganda during the fieldworkcarried out October 24-28, 2005 (see Annex IIfor the list of individuals consulted); and (3)visits to financial institutions to collect informa-tion on savings products.2

OVERVIEW OF THE UGANDAN FINANCIAL

SYSTEM

Uganda is often regarded as one of Africa’sbest economic performers. Following manyyears of civil war, hyperinflation and eco-nomic mismanagement, Uganda embarkedon an ambitious reform policy in 1987 torehabilitate the economy. GDP grew at ahealthy 6.5 percent annually from 1990 to2000,3 benefiting from strong export perform-ance, liberalization of the economy, andrestoration of macroeconomic stability.Inflation was brought under control in thepost-war period, declining from greater than100 percent in 1987 to single digit figureswhere it has remained (5.2 percent in 2004).The percentage of individuals in absolutepoverty decreased from 56 percent in the late1980s to 34 percent in 2000.4

However, data suggests the pace ofpoverty reduction may be slowing or evenreversing. Between 2000 and 2003, the bottom80 percent of the population experienced a 2-4percent decline in consumption,5 even as theeconomy grew at a steady annual pace of 5.5percent.6 The proportion of people livingbeneath the poverty line has increased to 38percent in 2004, primarily resulting from a 10percent slide in the agricultural terms of trade.This deterioration hits hardest among the 75percent of Ugandans living in rural areas, whoare already poorer on average than their urbancounterparts.7

Country-Level Savings Assessment

3

__________________________1 For further information on CGAP’s Savings Initiative andinformation on savings mobilization, visit the CGAPSavings Information Resource Center (SIRC) atwww.cgap.org/savings.2 The assessment team consisted of CGAP staff RaniDeshpande, microfinance analyst, and Mark Pickens,associate microfinance analyst; and Hermann Messan ofSIOM Consulting. The USAID Rural SPEED Projectorganized meetings and mission logistics for the team, andassisted in gathering information on savings products. BothRural SPEED and DFID’s FSDU project provided valuableguidance throughout the assessment.

Defining Savings: Poor people save in variousforms-----financial and non-financial, formal andinformal. The focus of the assessment is onformal financial savings defined as non-compulsory liabilities that come from clients.

__________________________3 World Bank, African Development Indicators 2003. 4 MoFPED. 2004. “Poverty Eradication Action Plan 2004-2008.” Kampala: Government of Uganda.5 Kappel, Robert, Jann Lay and Susan Steiner. 2004. “TheMissing Links – Uganda’s Economic Reforms and Pro-PoorGrowth.” Eischborn: GTZ.6 Uganda Bureau of Statistics. Aug. 2005. “Key EconomicIndicators.”7 Ibid.

The financial system in Uganda hasundergone major restructuring in recent years,with a number of bank failures eroding publicconfidence. The largest jolts included bankingauthorities’ seizure of a trio of banks in 1999(Cooperative, Greenland and InternationalCredit banks), followed two years later by theprivatization of Uganda Commercial Bank.Together, Cooperative Bank and UgandaCommercial Bank held 70 percent of assets inthe Ugandan banking sector.8 In 2002, thecentral bank ordered the restructuring of PostBank, including a reduction from 91 to 20service locations. Among member-ownedinstitutions, many rural savings and creditcooperatives (SACCOs) have fallen victim topoor management compounded by the eco-nomic stress on members.9

These successive collapses have shrunkfinancial sector outreach. Although 12 newbanks were licensed in the past decade, densityof service points has not recovered to mid-1970s levels. There were 133 commercial bankbranches in Uganda at the end of 2004, com-pared to 290 in 1972. The ratio of population tocommercial bank branches has therefore deteri-orated, from 34,000 in 1972 to 194,700 in2004.10 When all branches of deposit-takinginstitutions are considered, this ratio becomes26,155:1.11 As a comparison, this is approxi-mately two and a half times worse than thesame ratio in Benin, which has a roughlysimilar per capita GDP. The assessment teamidentified 1.94 million deposit accounts, mean-ing an estimated 12.5 per cent of economicallyactive adult Ugandans have direct access to adeposit account.

The ratio of liquid liabilities to GDP islow compared to neighboring countries: 17.6percent in Uganda versus 40 percent and 35percent in Kenya and Tanzania respectively.12

The ratio of savings in banks to GDP is 13.7percent, but bank lending to the private sector isonly 5.3 percent of GDP. This significant over-liquidity in the banking sector is largelyabsorbed by government borrowing, which hasincreased five fold since 2000.13 Until recently,91-day treasury bills offered rates as high as 20percent, presenting a risk-free placement oppor-tunity with yields competitive to private sectorlending. Rates have dropped considerably since2003 and were at 8.1 percent for 91-day T-billsat the time of the study.

Sources: BoU; MoFPED; Uganda Bureau of Statistics;World Development Indicators Database; World BankFinancial Structure Database.

Uganda

4

__________________________8 Meyer, Richard L., Richard Roberts and Adam Mugume.2004. “Agricultural Finance in Uganda: The way forward.”FSD Series No 13, Financial Systems Development. 9 Interviews with UCA and UCSCU staff.10 Figures for 1972 “branches” and “customers per bankbranch” quoted in Meyer et al, 2004. Figures for 2004 fromBoU Annual Report. Between 1972 and 2004 Uganda’spopulation increased from 9 to 25.9 million.11 Calculation includes branches of all Tier 1 banks, the twoTier 2 retail finance institutions (Post Bank and CMFL), thefour MDIs, and 750 actively operating SACCOs identified ina recent census of Tier 4 institutions coordinated by DFID’sFinancial Sector Deepening Project Uganda (FSDU) and theMinistry of Finance, Planning and Economic Development(MoFPED).

__________________________12 Meyer et al., 2004.13 MoFPED, 2004.14 See footnote 11

Table 1: Key Economic and Banking Indicators

Population (2004) 25,920,000

Economically Active Population 15,577,920

Total number of households (2002) 5,126,762

% Population under national poverty line (2003) 38%

Economic Growth Rate (real) (2004) 5.5%

Average US dollar exchange rate (2005) UGS 1,768

Inflation (2004) 5.2%

91-day treasury bill rate (21.10.05) 8.1%

GNI per capita (Atlas method) (2004) USD 270

National savings rate (2003) 5.9%

Liquid liabilities/GDP (2003) 17.6%

Savings in Banks/GDP (2003) 13.7%

Cash in circulation/deposits in banks (June 2005) 23.7%

Private Credit/GDP (2003) 5.3%

Savings in Banks/Private Credit (June 2005) 208.2%

Bank lending to government/private credit (Nov. 2005) 60.5%

Number of deposit accounts in financial institutions 1,943,356

Total Branches of Deposit Taking Financial Institutions 99114

Population/Financial Institution Branch 26,155

Financial Institution Branch/Million Inhabitants 38

CLIENTS: DEMAND FOR DEPOSIT SERVICES

Savings Habits and Preferences areRelatively Well-Documented

Multiple studies show the prevalence of savingamong low-income Ugandans. Respondents inone study of urban and rural Ugandans reportedsaving an average of USD 132 during the prior12 months, primarily via informal means.15

Informal savings mechanisms include conver-sion of cash into assets that are a reliable store ofvalue (livestock, land); participation in ebibiina(ROSCAs, ASCAs and similar groups); using amoney guard (a family member or other trustedindividual); and saving in cash at home, often inclay jars or mukandala (money belts worn underclothing). A second survey focused solely onrural households found 80 percent of respon-dents had saved some money in the past yearusing a combination of formal and informalmechanisms.16 Evidence also indicates manyUgandans value savings more than loans: 57percent of respondents in one study said a secureand convenient place to save money was moreimportant than the ability to obtain a loan.17

Studies of client preferences reveal thatthe top qualities poor Ugandans seek in a savingsmechanism are security and accessibility – bothphysical (proximity) and financial (affordability).

Security

Security weighs in as the most significantfactor for small savers, with some 60 percent ofsurvey respondents ranking this as their top

priority.18 Despite the rash of bank closures inthe past decade, small savers still see banks assubstantially more secure places to depositmoney than saving at home or in semi-formalinstitutions.19 High rates of loss in non-regulated savings mechanisms help explain thepreference for banks. A survey of 1500 peoplefound 99 percent of respondents who saved inthe informal sector had lost some money in thepast year, as had 26 percent of savers in semi-formal institutions (MFIs and SACCOs).20 Inmember-owned financial institutions, securityof savings is viewed as highly contingent uponthe honesty of managers.21 In the absence ofdetailed information about the financial healthof different institutions, small savers equatemodern, strong-looking physical premises withinstitutional stability, a factor which worksagainst SACCOs and, historically, MDIs.22

Proximity

In one survey of rural Ugandans, 87 percent ofrespondents said that a service delivery point intheir sub-district would satisfy their needs assavings clients.23 However, many ruralUgandans find the nearest financial institutioncan be up to 60 kilometers away.24 As a result,informal and semi-formal savings mechanismscan out-compete formal sources on proximity,helping explain why relatively risky informalmechanisms are still the most widely used bylow-income Ugandans.

Country-Level Savings Assessment

5

Main Finding: Demand for deposit servicesamong low-income Ugandans is well-document-ed, but usage rates are low, suggesting a wide-open market for formal deposit services.

__________________________15 Wright, Graham and Leonard Mutesasira. 2001. “TheRelative Risks to the Savings of Poor People.” Kampala:MicroSave. The survey interviewed 1497 people. 16 Pelrine, Richard and Olive Kabatalya. September 2005.“Savings Habits, Needs and Priorities in Rural Uganda.”Kampala: USAID/Rural SPEED. The survey included 852respondents in rural towns and villages. 17 Musoke, Isaac. 2004. “Knowledge, Attitudes and Practicesof Consumers of MFI Services in the Districts of Masaka andMbale.” Kampala: CDFU and DFID-FSDU.

__________________________18 Pelrine and Kabatalya, 2005.19 Steadman Group. June 2005. “Rural Savings, Needs, Habitsand Priorities Study: Qualitative Report.” Kampala: USAID/Rural Speed. Sebageni, Grace, Steven Kaggwa and LeonardMutesasira. 2002. “Where There Is No Banker: FinancialSystems In Remote Rural Uganda.” Kampala: MicroSave.20 Wright and Mutesasira. 2001. “Informal sector” mecha-nisms included saving at home, in-kind, and through ASCAsand ROSCAs. The proportion of people losing savings variedby mechanism, but as most respondents used multiple mecha-nisms, nearly all lost some savings during the past 12 months.21 Steadman Group, June 2005. Sebageni, Kaggwa andMutesasira, 2002.22 Mukwana, Peter and Grace Sebageni. 2003. “An In-DepthAssessment of the Ugandan Microfinance Market.”Kampala: Microsave. MDIs are presently upgrading theirbranch facilities per Bank of Uganda regulations.23 Pelrine and Kabatalya, Sept. 2005. Bakeine, Amos. 2001.“An Analysis of the Factors Affecting the Demand forSavings Services by Rural Savers in Uganda: A Case Studyof Kibaale District.” Kampala: SUFFICE.24 Sebageni, Kaggwa and Mutesasira, 2002.

Proximity also affects transaction costsfor savers. The cost of transportation can makeformal institutions prohibitively expensive forlow-income people who save small amounts.One study found transportation costs for saversto be UGS 7,000 (USD 3.90) for an averagesavings transaction—over five times daily percapita income.25

Affordability

Once proximity issues are addressed, the nextthreshold of affordability is minimum openingbalances. In a survey conducted by USAID’sRural SPEED Project, 65 percent of respondentspreferred a minimum opening balance of lessthan UGS 10,000 (USD 5.65). Non-clientsshowed the strongest preference for openingbalances of UGS 5,000 or less, suggesting thatthe minimum balance threshold may play anespecially large role in excluding the poor.

High fees were the second and thirdmost cited hindrance to using formal savingsamong non- and exited clients, and (according tointerviewees) were a major source of dissatisfac-tion among small savers.26 Anecdotal evidencesuggests clients often do not know the necessaryquestions to ask when opening an account, andbank staff sometimes fail to adequately explainfee structures on savings accounts.27

Small Savers Hold Mixed LiquidityPreferences

Rural Ugandans save for a mix of life-cycleevents, asset acquisition, and emergencies,suggesting a range of liquidity preferences (seeTable 2). In one study, savers indicated a pref-erence for liquid savings mechanisms whichcould be easily accessed in response to an emer-gency.28 This is in contrast to the results of anation-wide survey that found rural Ugandanspreferred making withdrawals monthly or

quarterly but deposits more frequently, suggest-ing a preference for illiquidity.29 A study in theKibaale District found that people saving forlife-cycle events have the highest preference forilliquid savings products.30

Overall, individual households may holddifferent liquidity profiles for different parts oftheir economic portfolio, placing some resourcesintended for emergencies into highly liquidsavings forms (money belts, cash in pots), whilelooking for a more illiquid means by which tosave for other needs. This could have substantialimplications for how institutions design productsand expected customer response.

Low Formal Sector Penetration

Despite well-documented demand, relativelyfew low-income Ugandans channel their sav-ings into the formal sector. The Rural SPEEDstudy found that formal and semi-formal insti-tutions are attracting just over 10 percent ofrural Ugandans, who represent 75% of the totalpopulation (see Table 3).31 Urban Ugandansenjoy better, but still imperfect, access, with 55percent of respondents reporting they used abank, MFI, SACCO or other type of financialinstitution during the previous 12 months.32

Uganda

6

__________________________25 Bakeine, 2001.26 Pelrine and Kabatalya, September 2005.27 A parallel could be drawn with loans, where one surveyrevealed that 69 percent of borrowers had not been madefully aware of all of the interest and fees charged. In institu-tions where product terms are not adequately explained, itis likely that this lack of transparency would also apply tosavings accounts. See Musoke, Isaac, 2004.28 Sebageni, Kaggwa and Mutesasira. 2002.

__________________________29 Pelrine and Kabatalya, September 2005.30 Bakeine, 2001.31 Pelrine and Kabatalya, September 2005. Note: Percentagesshould not be read cumulatively, as some respondentsindicated they use more than one means.32 Wright, Graham and Paul Rippey. September 2003. “TheCompetitive Environment in Uganda: Implications forMicrofinance Institutions and their Clients.” Kampala:MicroSave/FSDU/Imp-Act.

Table 2: What do Rural Ugandans Save For? School fees 45% Medical emergencies 45% Other unforeseen events 42% Purchase business assets 20% Housing 17% Required to access loans 12%

Source: Pelrine and Kabatalya, 2005

Table 3: How do Rural Ugandans Save? In cash or in kind 81% ROSCAs / ASCAs 7% Banks 6% SACCOs 4% MFIs / MDIs 2%

Source: Pelrine and Kabatalya, 2005

MICRO: INSTITUTIONAL CAPACITY AND

SUPPLY OF DEPOSIT SERVICES

Overview of Deposit-taking Institutions inUganda

A diverse range of institutions are active indeposit mobilization in Uganda. Current finan-cial sector regulation divides institutions intofour “tiers”:

l Tier 1: Commercial banks are licensedunder the Financial Institutions Statute of1993. They are permitted to offer a fullrange of financial services, includingdeposits. Fifteen commercial banks operatein Uganda at present.

l Tier 2: Credit institutions are also licensedunder the Financial Institutions Statute.They can take deposits, but are restrictedfrom performing foreign exchange services.The seven Tier 2 institutions include PostBank, and one institution which styles itselfas a microfinance bank (CommercialMicrofinance Ltd.).

l Tier 3: Four micro-deposit taking institu-tions (transformed MFIs authorized to takevoluntary deposits from the general public)are licensed under the Micro Deposit-Taking Institutions Act of 2003. MDIs are

prohibited from operating demand checkingaccounts and also can not perform anyforeign currency operations.

l Tier 4: SACCOs and MFIs are groupedtogether in Tier 4. They operate under avariety of legal regimes including theCooperatives, Companies, and NGO Acts.Tier 4 institutions share two key features:The Bank of Uganda (BoU) does notexercise prudential supervision over them,and they are forbidden to mobilize depositsfrom the general public. SACCOs can onlyaccept only member savings (voluntarydeposits and share capital), whereas MFIscan only collect compulsory savings fromborrowers.

Tier 1 banks serve approximately two-thirds of all formal sector depositors in Ugandaand mobilize more than USD 1.4 billion indeposits, nearly twice the volume of savings inall Tier 2, 3 and 4 institutions combined. Table4 presents other key statistics on different tiersof deposit-taking institutions.

Which Institutions Serve Small Depositors?

The aggregate statistics above mask a complexand sometimes counter-intuitive landscape ofdeposit service providers in Uganda. Amongbanks, Stanbic and Centenary stand out foradopting strategies that penetrate low-incomeand rural markets. Approximately 93 percent ofthe 990,097 accounts in these two banks havebalances of UGS 1 million or less (roughlyUSD 570).34 They appear to reach a greatnumber of clients from lower economic profilesthan other banks. Centenary Bank is a

Country-Level Savings Assessment

7

Main Finding: No single type of institution meetsrural Ugandans’ demand for security, proximityand affordability, but incentives and competitioncould draw banks downmarket, and linkagesbetween SACCOs and regulated institutions alsooffer promise.

__________________________33 Basic performance data was only available for 147 of thelargest SACCOs in Uganda. This data set is used in mostcharts throughout the report, except in figures on the totalbranches of deposit-taking institutions (Table 1) and popula-tion per branch (Table 1 and Figure 3).

__________________________34 Accounts with balances under UGS 1 million are the low-est stratification of deposit balances tracked by BoU.

Table 4: Key Statistics for Deposit-Mobilizing Institutions in Uganda Tier 1 Tier 2 Tier 3 SACCOs33 Total Number of Institutions 15 7 4 147 173 Branches 133 28 80 147 388 Savers/accounts 1,350,294 241,883 257,131 94,048 1,943,356 Savings (USD mil) 1,442.1 45.9 14.9 9.2 1,512.1 Avg. balance (USD) 1,068 189 58 98 778

Sources: Bank of Uganda, AMFIU, UCA and UCSCU. All figures are the latest available: Tier 1 and 2 numbers from end 2004, and Tier 3 and SACCO numbers from end 1st quarter 2005.

Ugandan-owned, Catholic Church-affiliatedinstitution formed explicitly for the purpose oftapping underserved markets. Stanbic is a SouthAfrican-owned bank which purchased thedefunct Uganda Commercial Bank and its largerural branch network in 2002. Among Tier 1institutions, Stanbic and Centenary possess morethan a third of all deposits and two thirds of allbranches.

Other institutions focusing on servinglower-income and rural depositors include apair of Tier 2 institutions (Post Bank andCMFL), the four MDIs (PRIDE, Finca, UFTand UMU), and at least 750 active SACCOs.35,36

An interesting picture emerges when these

institutional types are compared (see Figure 1).Stanbic’s USD 83 million in small-balanceaccounts exceeds the USD 59.5 million mobi-lized by Centenary, Post Bank, CMFL, the 4MDIs, and 147 of the largest SACCOs com-bined. Further, account sizes in Centenary(USD 48) are smaller than all but one of theMDIs (UFT at USD 46). Surprisingly, the 147SACCOs in the sample show an averageaccount balance (USD 96) higher than all otherinstitutions except for Stanbic.

Such figures counter common precon-ceptions about the best institutional types forextending access to deposit services. First,the comparatively high average balance inSACCOs may call into question assumptionsabout the relative poverty outreach of SACCOsversus other institutional types.

Second, the average balance figure forCentenary suggests that the commercial banklegal form does not in itself prevent either depthor breadth of rural outreach. Banks, in general,appear to have a relatively healthy appetite fordeposits, driven by good investment opportuni-ties in government securities. Interest rates on91-day T-bills peaked at 21 percent inDecember 2003. Ugandan bankers tended toview this as an incentive to mobilize more

Uganda

8

Figure 1: Distribution of Small Accounts and Average Deposit Balances

Among Sample Ugandan Institutions

Sources: BoU for Tier 1 and Tier 2 institutions (June 2005); AMFIU for MDIs (Mar.2005); UCA and UCSCU for 147 SACCOs (Mar. 2005). Stanbic and Centenary depositsrepresent accounts with balances under UGS 1 million.

__________________________35 Over 1400 SACCOs are registered in Uganda; however arecent census of Tier 4 institutions identified 750 to 900SACCOs that were active. FSDU and MOP were completinganalysis of this data at the time of this report. Their findingsrepresent a significant increase over previous estimates of300 operational SACCOs. 36 A large number of SACCOs were formed between 2001and 2003 following announcements that the Governmentplanned to inject USD 5,000 into each of Uganda’s 5,000parishes to support Tier 4 institutions. Many ceasedoperating, or never became active, when the funding was notforthcoming. See Kohler, Wolfgang. Winter 2005. “BigPlans, Small Sums” in Akzente Special. Eischborn:GTZ.Also see Goodwin-Groen, Ruth, Till Bruett and AlexiaLatortue. October 2004. “Uganda Microfinance SectorEffectiveness Review.” Washington, DC: CGAP.

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deposits. Although rates have slid to 8.1 per-cent, treasury securities still comprised morethan a quarter of commercial bank assets as ofJune 2005.37 In addition, banks have discoveredthe market for salary loans, and are aggressive-ly seeking deposits to fund those. Some banksoffer rates as high as 14 percent for two-yearcertificates of deposit.

However, most banks besides Centenaryand Stanbic do not appear to have strong incen-tives to mobilize small deposits. They have tra-ditionally located their core customer segmentin the middle- and upper-income brackets, andat present primarily mobilize larger balancedeposits, as evidenced by the average balanceof USD 1,068 for Tier 1 institutions as a group.Perception, and some evidence, suggests thatmobilizing smaller deposits at scale couldrequire a substantial investment. One bankreported efforts to reach the unbanked resultedin more than a five-fold increase in its per clientcost-to-income ratio, at least during an initialpilot program.

What then drives Stanbic andCentenary to locate in relatively underservedmarkets? For Centenary, the answer has to dowith a social mission deriving from its reli-gious affiliation, as well as assistance in open-ing branches received from local churches.This acts as a subsidy that helps branches tobecome viable. Incentives play a role inStanbic’s case as well: after the purchase ofUCB, the government channeled its salary pay-ments through Stanbic and gave it exclusiveoperating rights for three years where ruralbranches were located, as incentives not toclose them. The experiences of Centenary andStanbic may not be directly replicable (onerelating to an affiliation with the CatholicChurch, and the other to a one-time-only priva-tization). But in light of the considerable subsi-dies which donors are currently committing toincrease access to financial services, the out-reach achieved by Centenary and Stanbic mayhold a lesson.

Increasingly fierce competition couldeventually lead other banks further down-market. The “high street” banks, such asBarclay’s and Standard, are seeking increasedmarket share and pushing into the middle-income customer segment, historically the pre-serve of smaller banks. In turn, smaller bankshave invaded the top end of MDIs’ customerbase. Some stakeholders believe competitionwill eventually force weaker banks to merge.Alternatively, competition could press one ormore banks to seriously consider lower-incomeclientele as a viable market, particularly if thenewly minted MDIs prosper and demonstratethe market’s profitability, or if banks noteStanbic and Centenary’s comparative success inserving rural areas.

How Do Ugandan Institutions Stack UpAgainst Demand?

This section evaluates the performance ofUgandan financial institutions relative to thecharacteristics valued most by clients: security,proximity and affordability.

Security

Regulation and supervision bolsters security informal deposit-taking institutions. Within regu-lated institutions, however, one of the maindeterminants of security is the institution’sability to manage its assets. Figure 2 showsvolume of deposits against PAR >30 in seveninstitutions representing the major types ofdeposit-taking institutions in Uganda. Twogroups of SACCOs are included: one set of 37working with UCSCU, and a second group of14 participants in a USAID-funded SACCOstrengthening project which ended in 2003.

Figure 2 shows deposit volumes andportfolio delinquency in regulated institutions(Centenary, CMFL, Pride, UFT, Finca andUMU) and SACCOs, which are unregulated.As illustrated, regulated institutions seem tomanage their asset quality relatively well,implying security for deposits. In addition,Tier 1 and 2 institutions fall under the BoU’sdeposit insurance scheme. Plans are underwayto extend deposit insurance to deposits inMDIs as well.

Country-Level Savings Assessment

9

__________________________37 Bank of Uganda. September 2005. “Quarterly EconomicReport: Volume 03/2005.” Kampala: Bank of UgandaResearch Department.

The relatively solid nature of regulatedinstitutions contrasts with that of SACCOs,which have highly variable performance asillustrated by the wide gap in delinquency ratesbetween the two groups of SACCOs. Weakgovernance, transparency and managementknow-how are widely known to plague manySACCOs.38 In many cases, SACCOs are notsafe repositories of poor people’s money. Dataon client attitudes indicates that low-incomeindividuals recognize this, as they tend to viewSACCOs as less secure than formal, regulatedinstitutions.39

Proximity

Uganda has at least 991 points of service whichprovide access to deposit services, including133 bank branches, 28 branches of Tier 2 insti-tutions active in microfinance, 80 MDI servicepoints, and approximately 750 active SACCOs.Combined, this translates to a ratio of one pointof service for every 26,155 people, reflectingextremely limited physical access to financialservice providers as compared to a number ofother countries (see Figure 3).

Figure 3: Population per Branch in SelectedCountries

Sources: CGAP Country-level Savings Assessmentsfor Mexico, Philippines, Bosnia and Benin, using datafrom central bank and other sources. US and Kenyafigures based on authors’ calculations.

One of the most salient features of thesavings landscape in Uganda is the concen-tration of regulated institutions in urban andperi-urban areas. Among Tier 1 banks, onlyStanbic and Centenary have any substantialpresence in rural areas. The 13 other banksoperate just 11 branches outside of Kampala,Entebbe, Jinja, Mbarara, Mbale and Masaka.While Post Bank and CMFL also have 28branches, 11 are located in and aroundKampala. Over 80 percent of the 80 MDIbranches are outside of Kampala and its

Uganda

10

Figure 2: Deposits and Delinquency: Finding a Safe Place for Savings

Sources: MixMarket for Tier 1, 2 and 3 institutions. Data for 37 SACCOs from UCSCU.Data for 14 SACCOs in Meyer, Roberts and Magume, 2004. Centenary deposit volumesrepresent accounts with balances under USD 500.

__________________________38 See for example: Staschen, Stefan. 2003. “PossibleMechanisms to Regulate Tier 4 MFIs in Uganda.” Kampala:GTZ/Financial System Development Programme. Wrightand Mutesasira, 2001. Meyer, Roberts and Mugume, 2004. 39 Pelrine and Kabatalya, 2005

4% 2%8%

4%1%

5% 6%

42%

$-

$5

$10

$15

$20

$25D

epos

its

0%

10%

20%

30%

40%

50%

Del

inqu

ency

Small Balance Deposits (USD mil) Delinquency

Centen

aryCMFL

PRIDE

Finca

UFTUMU

14 SACCOs

37 SACCOs

3,400 5,068

9,799 9,148 10,447 10,929

26,155

0

5,000

10,000

15,000

20,000

25,000

30,000

US

Bosn

ia

Mex

ico

Keny

aBe

nin

Philip

pines

Ugand

a

immediate environs, but mostly in secondaryand tertiary towns. Most SACCOs are locatedin rural areas.

Mapping of access points by districtillustrates this wide disparity between urbanand rural areas. As illustrated in Annex III,density ranges dramatically from 17,961persons per institution in Kapchorwa, to338,122 in Apac District. Thirteen districtsappear to have no financial institution branchesat all. Thirty-six districts have 100,000 or morepersons per financial institution access point,and 52 have a ratio greater than 50,000.40

Affordability

Table 5 compares the features of depositproducts at seven financial institutions. Five ofthe institutions surveyed offer entry-levelaccounts that require UGS 10,000 to UGS

12,000 or USD 5.65 to USD 6.80 to open ormaintain, indicating that they are just at thethreshold of what is acceptable to most clients.Increased competition in the past three yearspushed financial institutions to aggressivelylower their minimum opening balances, bring-ing them down from levels in excess of UGS200,000 (USD 113).

Although remuneration tends to be lessimportant than access costs for low-incomesavers, it does affect overall affordability.Interest rates for the products surveyed were setbelow inflation, leading to negative returns ondeposit balances. However, rates on termdeposits were substantially higher, which mayhelp to explain the sizeable proportion of saverswho expressed a strong illiquidity preference –at least for those who can accumulate thehigher minimum balances required.

Country-Level Savings Assessment

11

__________________________40 Annex III is based on collected data for branch locations ofall banks, Post Bank, CMFL, the four MDIs and 147SACCOs, as location data was not yet available for the full750 identified by FSDU and MOP. Population figuresobtained from Uganda Bureau of Statistics. 2004. “MainReport, 2002 Census.”

Source: Survey of financial institutions. N.a. indicates information could not be obtained from the relevant finan-financial institution. “LC1” refers to the village which is the smallest governmental unit in Uganda.

Table 5: Entry-level Deposit Product Features at Sample Institutions

All Figures in UGS Stanbic Post Bank Centenary Finca

Uganda Finance

Trust PRIDE UMU

Minimum balance to open

10,000 10,000 50,000 12,000 20,000 10,000 10,000

ID and other requirements to open account

References from 2 Stanbic

clients, ID, photo

Letter from employer or

LC1 Chairman, 3 photos, ID

Letter from employer, ID,

3 photos, 2,000 for passbook

Letter from LC1, reference from client of

any other bank, ID, 3

photos

Letter from LC1, ID, 3

photos ID, 2 photos

Letter from LC1 or

employer, 2 references, ID, 2 photos

Minimum maintaining balance

10,000 10,000 n.a. 10,000 n.a. 10,000 10,000

Minimum withdraw

5,000 on ATM, 1,000 in banking

hall None n.a. None 5,000 None None

Minimum balance to earn interest

200,000 20,000 n.a. 100,000 n.a. 150,000 200,000

Interest rate 3% 2% 2.5% 2% 2% 2% 3.5%

Debit card Yes, 30 ATMs No Yes, ATMs at

24 branches No n.a. n.a. No

Security and Accessibility: Tradeoffs andOpportunities for Linkages

An unfortunate tradeoff can be observedbetween institutions that offer the best proximi-ty of service and those which are the mostsecure. Figure 4 is a stylized representation ofthis phenomenon, plotting security on one axis(as proxied by portfolio-at-risk rates) versusproximity, as reflected in presence in ruralareas. The circle labeled “Target” shows theoptimal point where Ugandan clients wouldhave both security and proximity. The size ofthe “bubbles” reflects the total number of saversserved by each category.

Figure 4: Account Concentration andCharacteristics by Tier

Tier 1 institutions are largely safe andstable places to deposit money, but as a groupthey have poor outreach beyond cities. Highoutreach Tier 1 institutions (Centenary andStanbic) reach further into rural areas, but arefar from ubiquitous. Tier 3 institutions andMDIs cluster close to Centenary and Stanbic. Ina different category altogether are Tier 4 insti-tutions, which enjoy good proximity to theirmembers, but have well-documented manage-ment and governance weaknesses.

It is evident that no single institutionaltype possesses the full measure of security andproximity. Satisfying rural savers’ demand fordeposit services will depend on resolving thisconundrum. A number of stakeholders havenoted the promise of linking institutions withcomplementary strengths, particularly the prox-imity of SACCOs and the security of regulatedTier 1, 2 and 3 institutions.

Post Bank has pioneered several suchconnections with MFIs, with mixed results. Onepartnership with a MFI yielded a UGS 300million increase in deposits in several branchesin northern Uganda, with Post Bank makingseveral loans to the MFI for on-lending. A sec-ond MFI linkage involving deposit-taking vansmet with less success. Customer confidence waslimited by the fact that accounts could not beupdated in real time, creating client concernsaround the possibility of fraud. In addition, cus-tomers had concerns about the physical securityof mobile vans. Post Bank believes more aggres-sive marketing might have yielded stronger con-sumer understanding of the service. DFID’sFinancial Sector Deepening Project Uganda(FSDU) is currently negotiating projects withPost Bank and another commercial bank whichwill include mobile banking units and presum-ably take advantage of lessons learned from PostBank’s previous experience. They are also look-ing to Equity Bank in Kenya, which has hadconsiderable success with mobile banking vans.

Uganda

12

VSLAs: Combining Security and Accessibilityfrom the Bottom Up

While linkage projects attempt to increase theoutreach of regulated institutions, CARE Uganda,FSDU and PLAN International are supporting aninformal approach to providing financial servicesthrough Village Savings & Loan Associations(VSLAs). VSLAs are self-selected groups of 20 to30 members who save every week. Loans arefunded from member savings, typically at 10percent monthly interest. Because interest returnsto the VSLA coffers, members can earn an annualreturn of 50 percent or more on their savings. Mostgroups also establish a small insurance fund.

Advocates say VSLAs are less susceptibleto fraud than typical revolving funds. After one year,VSLAs conduct an "Action Audit" and distribute allgroup funds back to members, giving them a use-fully large sum of money at a predictable time andcreating a definite point in time for all outstandingloans to be settled. They also have a key advan-tage relative to SACCOs in that operating costs arevery close to zero, since VSLAs have no physicaloffices and no staff. This low cost structure permitsvery small transaction sizes, typically savings ofUGS 100 to 1000 (USD .05 to .50), and loans fromUGS 5,000 to 50,000 (USD 3 to USD 28). VSLAscan therefore serve poorer people who are willing toput up with weekly meetings and a limited productrange in exchange for the security, proximity andhigh return on savings that VSLAs purport to offer.

There is considerable “buzz” on thetopic of institutional linkages, which decom-pose the financial services value chain to allowdifferent players to concentrate on theirstrengths. For example, institutions working inclose proximity to rural savers (e.g. SACCOs)could partner with institutions which havestronger management (banks, MDIs). Bydoing so, banks and MDIs would gain greateroutreach, SACCOs might gain access totraining and improved management, with ruralclients gaining access to more accessible, moresecure savings (and other) services.

A number of institutions are currentlyexploring linkages. The Rural SPEED project isworking with 10 SACCOs which it hopes to linkwith regulated financial institutions later in2006. Nile Bank has explored the possibility oflinking with a large SACCO in northernUganda, but has not yet concluded a partnership.CMFL has also held discussions with SACCOsin northwestern Uganda, and FINCA is report-edly analyzing several opportunities to link withSACCOs. Successful linkages may go beyondshared retail operations and include back officestrengthening as well. Rural SPEED is in theplanning phase for a study which will analyzethe types of institutions that can be most feasiblylinked on the basis of financial transaction types,shared MIS and shared training.

MESO: SUPPORTING INFRASTRUCTURE FOR

DEPOSIT MOBILIZATION

Although there is currently a great deal of donorand government activity at the meso level,much of it takes the form of capacity buildingand wholesale lending to Tier 4 institutions.This approach may expand access but, giventhe weakness of existing SACCOs, also runsthe risk of creating many institutions wherepoor people’s savings would not be safe.Excessive lending can serve as a disincentive to

pursue additional deposits or, worse, threatenthe very incentive structure holding SACCOstogether.

In the meantime, meso-level structuresthat support small savings mobilization are inneed of significant development. Consumereducation is inadequate, as is reliable informa-tion about SACCO performance. SACCOs lackmechanisms to channel excess deposits intosafe and profitable placements. Poor access tothe payments system also inhibits institutions’incentives and ability to mobilize smalldeposits. Given the considerable amount offunding in the pipeline (see box), this may be anopportune time for donors and the governmentto re-evaluate the types of investments thatwould best promote access to quality depositservices for poor Ugandans.

Wholesale Funding and LiquidityManagement Mechanisms

In Uganda, major sources of wholesale financ-ing to Tier 4 institutions include the EU’sSupport to Feasible Financial Institutions andCapacity Building Efforts Project (SUFFICE),OikoCredit, Stromme Foundation, and theMicrofinance Support Center Ltd. (MSCL).MSCL’s portfolio is several times larger thanthat of the others combined, and targetsSACCOs for wholesale lending as well as MFIs.It is questionable whether lending to SACCOs isappropriate given (1) the potential to discouragedeposit mobilization, (2) the negative impact oflarge chunks of external funds on managementand governance, and (3) the fact that manySACCOs are already overliquid.

Easy access to inexpensive financingcan serve as a disincentive to deposit mobiliza-tion. In one SACCO in Central Uganda recentlyevaluated by a donor, average savings of UGS62,500 (USD 35) per member was paralleledby wholesale financing of UGS 41,000 (USD23) per member. The exorbitant degree ofexternal financing was judged by both SACCOmanagement and donor staff to have discour-aged the institution from mobilizing moresavings. Wholesale funds are abundant andrelatively easy to access in Uganda, suggestingthat disincentives to deposit mobilization could

Country-Level Savings Assessment

13

Main Finding: Excessive second-tier funding toTier 4 institutions risks proliferating unsuper-vised, low-capacity deposit-taking institutions,while other meso-level mechanisms are in needof development.

be widespread.41 Stakeholders report thatsavings rates at SACCOs have decreased aslending to SACCOs increased.

Equally troubling, stakeholders reportthat delinquency at SACCOs has increased atthe same time. This should not be surprising,given that the negative effect of external fundson group cohesion has been repeatedly demon-strated in other countries.42 In addition, giventhe liquidity position of most SACCOs, theneed for such wholesale lending is unclear (seeTable 6).

Donor support could instead focus onfinding ways to channel these excess depositsout of shaky SACCOs and into safe, profitableplacements. At present, most over-liquidSACCOs resort to depositing excess funds atbanks, which typically pay interest rates of 2 to3 percent—well below the annual inflationrate of 5.2 percent. Investing in higher-yieldvehicles such as government treasury securitiesappears to be beyond the treasury managementcapacity of nearly all SACCOs.

Although reportedly under considera-tion by at least one donor project, no formalliquidity management mechanisms currentlyexist to allow over-liquid SACCOs to lend toothers seeking additional funds. In a study byRural SPEED, SACCO managers responded

Uganda

14

Substantial Investments in the Pipeline for Tier 4 Institutions

At the time of the assessment, large-scale donor and government support for strengthening Tier 4 institutionswas imminent. The largest funding flow includes up to USD 26.65 million from the African Development Bankfor on-lending to Tier 4 institutions via the MSCL. IFAD has also extended a USD 18.43 million loan to theMinistry of Finance for Tier 4 capacity building via the Rural Financial Services Project under the MicrofinanceOutreach Plan. While disbursement is contingent upon identification of appropriate uses, if fully disbursed thecombined USD 45.1 million in these two programs would exceed the estimated USD 40 million which donorsinvested in the entire Ugandan microfinance sector between 1999 and 2003.

The government and other donors are also mobilizing new funds to be deployed in SACCO and MFI-strengthening activities. In 2005, a "Government Plan to Enhance Rural Financial Services in Uganda" wasannounced through MoFPED. Its stated aim is to "develop financial infrastructure designed to reach thepopulation in all sub-counties," through the strengthening of apex institutions and existing SACCOs, as wellas the creation of new SACCOs in more than 20 districts where they do not currently exist. According topublic circulars published in newspapers, the program would be implemented through MSCL, MOP, SUFFICEand UNDP's Support to Village Savings and Credit Institutions project.

Stakeholders report that the plan has not achieved widespread consensus. Primary support comesfrom a number of politicians, while most other stakeholders appear to have questions about the project'sprospects. The poor management of many existing SACCOs, despite capacity-building efforts, leads many tobelieve that the safety of poor people's deposits could be more effectively secured through other investments.At the time of this assessment, the government and other stakeholders had yet to engage in in-depth dialogueaimed at building a shared understanding on the best strategy for improving rural access to savings and otherfinancial services.

Sources: Stakeholder interviews; Goodwin-Groen, Bruett and Latortue, 2004; Ministry of Finance, Planning andEconomic Development, 2005.

__________________________41 A laudable level of donor coordination has led to anagreement to lend at rates of 15-20 percent based on an indexpegged to various market indicators. The rates vary accord-ing to the instrument used and the institution borrowing.However, according to a senior MDI manager, they aregenerally high enough that most financial institutions canmobilize deposits less expensively than taking a credit line.42 Ouattara, Korotoumou, Claudio Gonzalez-Vega andDouglas Graham. Dec. 1999. “Village Banks, CaissesVillegoises and Credit Unions: Lessons from Client-ownedMicrofinance Institutions in West Africa.” Washington, DC:USAID Microenterprise Best Practices Project. Rosenberg,Richard and Jessica Murray. Forthcoming. “Should DonorsContinue To Support Community-Managed Loan Funds?”Washington, DC: CGAP.

Table 6: Excess Liquidity in 147 SACCOs (USD mil)

Share capital 1.91 Voluntary savings 6.66 Total savings on deposit 8.57 Total loan portfolio 6.35 Excess liquidity 2.22 Source: Data gathered by UCA and UCSCU

negatively to the idea of central funds manage-ment by a SACCO union, mainly because ofconcerns that liquidity sharing could drag suc-cessful institutions down when weaker ones fail.

Capacity-Building Resources on DepositMobilization

In 2004 CGAP’s Microfinance SectorEffectiveness Review found the supply of train-ing and technical assistance resources inade-quate for the demand in Uganda. However, thisreview finds that capacity-building resourcesknowledgeable about deposit mobilization arerelatively plentiful compared to other markets (ifperhaps still insufficient for the overall demand).

Overall, there are more than 30 sourcesof capacity building services in Uganda. Threeuniversities – Nkozi, Makerere and UgandaMartyrs – offer capacity building on depositmobilization, as does the MicrofinanceCompetence Centre (MCC) at the UgandanInstitute of Bankers. A number of MicroSaveand AFCAP-trained consultants are also activein providing training and technical assistance.Their numbers are limited, however, and over90 percent are Kampala-based according to arecent analysis.43

Another source of management supportservices for Tier 4 institutions is membership-based umbrella institutions. The UgandaCooperative Association (UCA) has a broadmembership of more than 7,000 multi-servicecooperatives, with 300 SACCOs among them.Membership of the Uganda Credit and SavingsCooperative Union (UCSCU) is limited toSACCOs, 31 of which report quarterly and anadditional 210 with which it works periodically.The Association of Micro Finance Institutionsof Uganda (AMFIU) is a network of 114 MFIs,of which only the four transformed MDIs areauthorized to collect voluntary deposits. UCA,UCSCU, and AMFIU provide services includ-ing performance monitoring, on-site advice,and coordination of training from other sources.However, the high ratio of member institutionsto staff (see Table 7) limits their capacity.

At present, the largest sources of tech-nical assistance funding are the Matching GrantProgram and Rural Financial Services Project,both under the MOP. MOP is a multi-year effortaimed at encouraging branch expansion andproduct diversification among Tier 4 institu-tions, strengthening apex institutions, and fund-ing consumer education. Funding comes fromthe EU, DANIDA, and IFAD. In addition,several donor-financed entities, such as theCapacity Building Unit at SUFFICE and theStromme Foundation provide capacity-buildinggrants, training and other support.

Although investments have been signif-icant, stakeholders report that a “vaccination”approach is typical, with funders exposing asmany institutions as possible to training. Thistends to spread resources evenly, but thinly. Atleast one MDI reports it would like to add threeadditional savings products but is unable givenlimited in-house capacity and locally-availabletraining. Parceling out capacity building insmall packets also begs the question of whetherdonors and government programs have theresources needed to build up many small insti-tutions, or would be better advised to concen-trate on developing fewer, stronger ones. Somestakeholders also noted the duplication of effortand sub-optimal usage of resources amongcapacity-building service providers.

An additional shortcoming in thecurrent structure of capacity-building efforts isthat they are targeted almost exclusively tomanagers. Several stakeholders pointed outthat, in membership-based institutions, capacitybuilding for managers without correspondingeducation for members serves to increase the“capacity distance” between the two. Thismakes it harder for members to monitor andhold managers accountable, increasing thepossibilities for fraud and mismanagement.

Country-Level Savings Assessment

15

__________________________43 Zikisooka, Francis. “Challenges of Building the Capacityof Sustainable Microfinance Institutions.” The MicrofinanceBanker Vol. 4, Issue 3, 2004.

Table 7: Staff Resources at Tier 4 Umbrella Institutions

Institution Member

Institutions Staff

Members per Staff

AMFIU 114 7 16

UCA 7000 80 87

UCSCU 241 8 30

Source: AMFIU, UCA, UCSCU

Lack of Reliable Information forConsumers and Investors

Access to reliable information about thehealth of financial institutions is key for helpingconsumers decide where to bank. All clientswant to know is that their money is safe, anddonors want to make wise investments. Yet, inUganda, such information is scarce, particu-larly for Tier 4 institutions.

Some stakeholders in Uganda areconsidering the merits of a “star” system tocommunicate information about financial insti-tutions’ health.44 Dependable external moni-toring and data collection would be a pre-condition, but unfortunately no entity is effec-tively supervising and/or collecting data onSACCOs. A number of efforts are underwaywhich have potential to improve the situation:

l A comprehensive census of Tier 4institutions (MOFPED/FSDU);

l A consumer education program(AMFIU/FSDU/EU);

l A publicity campaign with the message“save, but save prudently” (Rural SPEED)

l Financial Extension Workers (SUFFICEmanaging on behalf of MOP);

l Conversion of the industry-standardPerformance Monitoring Tool into aninternal monitoring tool for Tier 3 and 4institutions, and consolidation of data intoa centralized database of financial and out-reach information (AMFIU, Rural SPEED,GTZ/Sida , SUFFICE);

l Development of a time-efficient due diligencetool for wholesale lenders (Rural SPEED)

l A Tier 4 rating service which will be operat-ed by PlaNet Rating (SUFFICE/FSDU).

Payment Systems and the Promise ofTechnology

Well-functioning payment mechanisms makedeposit products more attractive and accessibleto low-income customers in multiple locations,potentially drawing previously unbanked clientsand their liquidity into the formal sector.

Technology-enabled delivery channels—such asmobile phones, ATMs, and point-of-sale (POS)card readers—have the capacity to multiply thenumber of financial service access points,unlocking rapid growth for institutions, and sub-stantially increasing convenience for customers.

Uganda’s national payment system hasseen major improvements since 1988.45 Severalcommercial banks have established a nationalswitch, and Stanbic operates its own via theATMs in its network of 68 branches. At themoment, however, MDIs are not permitteddirect access to the national switch. Instead,they are forced to use commercial banks for thisfunction, adding to their cost.

As a result, some donor agencies,MDIs and other stakeholders are exploringtechnology-enabled remote payment systems.Technology also holds the potential to reducethe cost of offering services in close proximityto clients by bypassing traditional (and expen-sive) branch-based expansion models.

Hewlett-Packard and three Ugandaninstitutions (UMU, Finca and FOCCAS) arepiloting the Remote Transaction System (RTS).Through RTS, clients are issued smart cardswhich store data about their accounts on acomputer chip. Clients access their accountusing the smart card via card-reading terminalsat a network of shops and other retailers. Byswiping the card through the terminal, cus-tomers can conduct balance inquiries, cashdeposits and withdrawals, and electronic pay-ment for goods. The terminals use cellular con-nections to communicate information about thetransaction back to the financial institution.

Rural SPEED is also engaged in apartnership with Simba Telecom to develop apayments system using SMS text messagingover mobile phones. The project will initiallyuse Simba’s company-owned stores as pointsfor sending/receiving cash transfers, with a laterroll-out to 1200 affiliated vendors and creationof a platform for mobile phone banking forSimba subscribers.

Uganda

16

__________________________44 The strongest institutions would be awarded the most stars(perhaps five out of five), and would be able to display therating on their premises to inform current and potential clients.

__________________________45 Bank of Uganda. 2000. Stocktaking and SituationalAnalysis Report. Kampala: Bank of Uganda, NationalPayment System Project.

Such approaches still have much to beworked out. A key challenge for making tech-nology-enabled solutions relevant for low-income clients is encashment—allowing cus-tomers to convert electronic value into papercurrency and vice versa. One common solutionis to partner with merchants who exchange cashfor the value on the smart card or mobile phoneaccount, as in the case of gas stations with RTSor Simba Telecom’s stores.

However, retailers with adequate litera-cy or comfort with technology may be difficultto find in a low-income, rural environment. Inaddition, retailers must be able to handle the fullvolume of demand for cash-in and cash-outtransactions. Chains of gas stations, airtimeresellers and other retailers affiliated with alarger company may be better able to meet theliquidity challenge. Another area of uncertaintyis regulatory authorization for non-bank entitiesto act as agents of a financial institution inaccepting deposits. The RTS experience alsoshows how expensive it can be to get tech-nology “right”. One institution engaged inthe experiment estimates it has individuallyinvested USD 200,000 to date, and the systemhas yet to be rolled out at scale. Hewlett-Packard and other international supporters havealso invested a considerable amount.

Finally, customer adoption of newtechnology must also be considered. MTNtried its “Me2U” airtime uploading solutionwhich previously met with success in SouthAfrica, but found that Ugandan clients neededmore training to become comfortable with theproduct.46 One encouraging sign is adoption ofATM cards as customers recognize the conven-ience and time saving over crowded bank halls:surveys show that 15 percent of clients inKampala already use ATM cards. Moreover,70 percent of respondents not currently usingan ATM said they would use one if it wereoffered to them.47

MACRO: POLICY AND REGULATORY

ENVIRONMENT

MDI Act and Implications for RuralOutreach

The MDI Act marks a significant milestone inthe development of Uganda’s financial sector.It paves the way for high-performing institu-tions to offer a wider range of services toclients, clarifies their ownership, and bolstersthe security of poor people’s deposits. Muchhas been written about the positive qualities ofthe law, and the highly consultative processpursued in drafting it.48 Enacted in 2003, itprovides a regulatory window for the strongestMFIs to come under BoU supervision andlegally mobilize deposits. Four institutions havereceived MDI licenses, with a fifth (Faulu)moving through the process. As a matter ofpolicy, MDIs are subjected to continuous off-site monitoring and an on-site visit at least onceannually. On average, a team of four BoU staffdevotes 25 person-days in preparation, time on-site and in follow-up with each MDI.

There is broad consensus that regula-tions governing MDI operations have, however,slowed the pace of branch openings and ruraloutreach, at least temporarily. BoU has estab-lished stringent physical requirements for newbranches (including 24-hour guards, secureteller windows, and standards for the appear-ance of premises). BoU has also mandated thatMDIs provide end-of-week statements by thefollowing Monday. According to stakeholdersinterviewed, this requirement is more stringent

Country-Level Savings Assessment

17

__________________________46 Systems like “Me2U” allow mobile phone subscribersto send each other airtime via their phones, essentially atelcom-enabled exchange of value.47 Wright and Rippey, 2003.

Main Finding: Regulated institutions benefitfrom capable oversight, albeit with heavy costs,slowing the expansion of MDIs. In contrast, Tier4 institutions suffer from inadequate supervision.

__________________________48 See for example: Kalyango, David. May 2005. “Uganda’sExperience with the Regulatory and Supervisory Frameworkfor Microfinance Institutions.” Essays on Regulation andSupervision No. 9. College Park, MD: MicrofinanceRegulation and Supervision Resource Center, IRIS; andLedgerwood, Joanna, Deborah Burand and Gabriela Braun,eds. November 2002. “The Micro Deposit-TakingInstitutions Bill 2002: Summary of Workshops andInformation Exchange Events.” Kampala: Bank ofUganda/GTZ/USAID/SPEED.

than that levied on Tier 1 and Tier 2 institutions,necessitating large investments in MIS and net-working of branches to be able to comply. MDImanagers estimate the cost of achieving com-pliance at approximately USD 1 million perinstitution to date. One institution stated thetotal cost of transformation at USD 4 millionover three years.

These regulations have, thus far, causedMDIs to slow or completely halt plannedbranch openings while they bring existingbranches up to the new standards. PRIDE,for example, has upgraded only 18 of its 29branches, and halted savings mobilization in theremainder until they are brought up to BoUstandards. In the medium-term, the investmentin modern facilities and MIS capacity are likelyto be a boon to MDIs. But for the short-term, itwould appear that growth in MDI outreach maycome more from intensification of market sharein current markets, rather than via significantextension to unserved rural areas.

Regulatory Vacuum for SACCOs

Given that achieving rural outreach through theMDIs is likely to take time, SACCOs are receiv-ing increased attention from donors and theGovernment of Uganda. The very substantialinvestments shaping up for Tier 4 institutionsare fueled by hopes of significantly steepeningthe growth curve for rural access. But unlessinterventions are thoughtfully crafted, there is asubstantial risk of pouring support into histori-cally weak institutions that do not enjoy anadequate regulatory and supervisory framework.

In contrast to institutions in Tiers 1-3,SACCOs operate in what amounts to a supervi-sory vacuum. Ugandan SACCOs benefit fromno legal status, regulation, or supervision systemwhich recognizes their distinct nature from non-financial types of cooperatives. They fall underthe Uganda Cooperatives Act, which governs allcooperatives and which charges the Ministry ofTrade, Tourism and Industry (MTTI) with main-taining a registry of cooperatives and overseeingtheir functioning and stability.

In practice, limited staff resourcesand technical expertise do not permit MTTI toanalyze the operations of SACCOs, conduct

monitoring visits, or state which SACCOs areactive, let alone healthy.49 As a result, depositsin SACCOs have little external protection.Many stakeholders are examining options forameliorating this situation, from having BoUsupervise SACCOs itself, to various forms ofdelegated supervision (member-owned apex ora third-party model).

Direct supervision seems unlikely in theshort term, as BoU has taken to heart the axiom“Do not regulate what you cannot supervise.” Itis understandably reluctant to take on the costlytask of supervising up to 1400 small, scatteredinstitutions with its current resources. Perhapsin the medium term BoU will be given suffi-cient resources to supervise a limited number oflarge SACCOs.

Until such time, some analysts haverecommended delegating supervision to a mem-bership-based body such as UCA or UCSCU.50

When published in 2005, the “Government Planto Enhance Rural Financial Services in Uganda”assigned a supervisory function to UCSCU,though few details were provided about how thiswould be implemented. Self-supervision bycooperative apexes or federations has accumu-lated a dismal record around the world. InUganda, the necessary conditions are not yet inplace for delegating supervision to an entity likeUCSCU. First, UCSCU is not empowered bylaw to perform prudential supervision for itsmembers. Second, even if it were, it is doubtfulthat UCSCU would be able to discharge thoseduties without a substantial increase in its insti-tutional resources and skill base. Currently, noumbrella organization has the ability to enforceeven basic transparency standards for SACCOs,such as regular reporting requirements, disclo-sure of institutional performance, and a code ofconduct for SACCO managers.

If some form of delegated supervisionis inevitable given BoU’s resource constraints,experiences from other countries may offeruseful lessons. First, a single apex body is often

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__________________________49 This view was expressed in multiple stakeholder inter-views during the assessment.50 Staschen, Stefan. 2003. “Possible Mechanisms to RegulateTier 4 MFIs in Uganda.” Kampala: GTZ/Financial SystemDevelopment Programme.

more effective than multiple institutions incharge of evaluating institutions. In thePhilippines, federations and TA projects havecreated multiple rating systems, which diminishthe effectiveness of each one. In Mexico, thecreation of multiple federations has opened thepossibility for cooperatives to switch theirmemberships in order to avoid strict supervi-sion or sanctions.

For this reason, membership in the apexmust also be mandated, not voluntary. Thethreat of sanctions is much less effective ifinstitutions can simply renounce their member-ship. If apexes are dependent on member dues,their ability to objectively analyze memberinstitutions may also be compromised. Due tothe possibility for conflicts of interest, a third-party model of delegated supervision may havesome advantages over one that operates througha membership-based organization. The “thirdparty” could be an offshoot of the membership-based apex, as long as it was wholly independ-ent in its supervisory role.

In any delegated supervision approach,bestowing adequate enforcement power will bekey to effectiveness. In Benin, the credit unionapex FECECAM does not possess legal author-ity to make binding recommendations upon itsmembers. As a result, recommendations gounheeded or only partially implemented.

Getting the Recipe Right for New DeliveryChannels

As in many countries, regulatory clarity on newdelivery mechanisms for deposit services suchas mobile phone banking and POS devices islacking in Uganda. BoU is currently firm onprohibiting deposit-taking at non-licensedpoints of service, although they may be satis-fied if retailers load value on cards right away.BoU has indicated it would like to study theissue further. Insights might be drawn fromwhat regulators have done in several countrieswhere technology-enabled delivery channelshave been launched, including South Africa, thePhilippines and Brazil.

Some Ugandan institutions are piloting“low-tech”, but equally promising, deliverychannels such as mobile vans, mini-branching

(at least to originate and disburse loans), as wellas linkages with SACCOs and MFIs. However,current banking regulations limit the scope oflinkages by prohibiting co-branding of productsbetween regulated and unregulated entities andbanning unregulated institutions from collect-ing deposits on behalf of an MDI or bank.Mobile vans appear to be permitted, but BoUhas limited mini-branching to credit operations.As these new delivery channels—both high andlow-tech—are just beginning to feature on theUgandan microfinance landscape, there is anopportunity to be proactive in defining whatwould constitute a mutually acceptable balanceof systemic stability and expanded access forconsumers.

STRATEGIES TO IMPROVE SMALL-BALANCE

DEPOSIT MOBILIZATION IN UGANDA

This section suggests potential strategies forincreasing and improving the quality of small-balance deposit mobilization in Uganda. Ratherthan offer prescriptions, these suggestions raisekey points that warrant further research andreflection among stakeholders. Many of thesuggested actions drive towards increasing ruralaccess to deposit services, part of a more gener-al challenge facing the Ugandan financialservices sector today.

1. Create smart consumers of financialservices. Consumer education efforts should belaunched to help small savers better understandthe mechanics of financial savings (such as howto interpret and predict fees and charges on theiraccounts). But educational efforts should goone step further, equipping small savers torecognize healthy institutions, especially giventhe current lack of effective supervision forSACCOs. At a minimum, consumers shouldunderstand the meaning and implications ofregulated vs. unregulated status.

Technical assistance to SACCOs shouldalso include member education, as wide gapsbetween member and manager know-how tendto create openings for fraud and mismanage-ment. Design of consumer education messagesand development of standardized curricula andcampaigns would be a worthy object for donorfunding, in consultation with other stakeholders.

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A system for disclosure of pricing andperformance information would be a desirablecomplement. BoU regularly publishes sched-ules of bank fees in urban newspapers, butavenues for making similar information avail-able and understandable to rural savers shouldbe explored. An easily communicated indicatorof institutional health could be produced by anindependent rating service for Tier 4 institu-tions or, in the longer term, by a supervisorybody.

2. Size the market and clarify behavior todesign competitive products. The businesscase for small deposit mobilization would bebolstered by information about the level ofunbanked liquidity in the informal sector,in-depth analysis of clients’ risk, return andliquidity profiles, and how they align differentkinds of savings instruments with varioussavings goals. Such information can help insti-tutions understand where attractive pools ofunserved demand lay which can be tapped byappropriately designed products. The upcomingFinscope Uganda study of financial servicedemand should yield data that could beanalyzed along these lines.

3. Link institutions to combine outreach andstability. Encourage linkages that combine thestrengths of different types of institutions andfacilitate the flow of poor people’s savings intosafer, regulated institutions. Such linkageswould build on SACCOs’ front office strengthof close proximity to rural savers, and the backoffice capacities of MDIs or banks.

Donors and government ministriesactive in supporting SACCOs have a role to playin brokering connections with interested banksand MDIs, though consummation of a partner-ship should rest solely on its commercial appealto both SACCO and bank or MDI. There appearto be strong incentives on both sides. Inexchange for depositing excess liquidity in reg-ulated partners, SACCOs might receive trainingand technical assistance needed to improve theirmanagement. Deposit-hungry MDIs, CMFL andsome smaller banks facing increasingly fiercecompetition might find linkages to be acost-effective source of portfolio financing.Marketing has an important role to play in shap-

ing customer trust in the linkage, though BoU’sprohibition against co-branding limits its scope.

Another potentially promising linkagecould involve Tier 1 banks launching their ownservice companies to lend to and take depositsfrom low-income clients. Commercial bankshave used this model in other countries withconsiderable success.51 Creating an independententity permits the bank to open new lines ofbusiness with clients who otherwise lay outsidethe parent bank’s traditional target, while pre-serving the parent bank’s hard-won brand.Increasing competition may make this approachincreasingly attractive to Ugandan commercialbankers. Clients would gain access and stabilityin a single entity.

4. Invest in developing new delivery channelsfor MDIs and Tier 1 and Tier 2 institutionswith an interest in microfinance. Innovativesolutions are needed to help institutions reachfarther afield and serve rural areas where 75percent of Ugandans reside. Both high- andlow-tech solutions should be considered.Delivery channels using mobile phones orsmart cards could be an area worthy of donorsupport, given the up-front investment requiredto get technology right, and potentially enor-mous impact on rural access. Even withoutexternal funding, institutions can roll out low-tech but potentially very effective solutions ontheir own, including the use of mobile vans ormini-branching to reach areas where a full-fledged branch may not be profitable.

Stakeholders in Uganda should alsoexamine the lessons conveyed by the successesof Centenary and Stanbic. Both manage largerural branch networks serving a considerablevolume of lower-income Ugandans, built insome measure with the aid of external induce-ments and support. Although direct subsidiesmay not be appropriate in replicating this typeof outreach, the government might considerextending fiscal or other kinds of incentives tobanks that agree to service under-bankedregions and lower-income Ugandans.

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__________________________51 See Isern, Jennifer and David Porteous. June 2005.“Commercial Banks and Microfinance: Emerging Models ofSuccess.” Focus Note 28. Washington, DC: CGAP.http://www.cgap.org/docs/FocusNote_28.pdf.

5. Explore innovative ways of managingSACCO liquidity. Beyond linking SACCOswith regulated institutions, another promisingopportunity to manage SACCO liquidity couldbe to link them to Uganda’s CollectiveInvestment Scheme. The mechanism poolsindividuals’ funds and invests in treasury secu-rities, providing a low-risk instrument offeringyields over 8 percent. The instrument could beemployed not only by SACCOs, but alsooffered by MDIs and banks as an inducementfor individuals to become (or remain) clients. Ifsuch an idea were pursued, Ugandan authoritiesshould act to ensure that fund managers arethoroughly vetted, and low-income people’sdeposits are placed only in secure investments,such as treasury securities.

6. Promote active dialogue with BoU on newmethods of increasing outreach. BoU has acritical role to play in shaping a number of solu-tions contained in this report. BoU approval forlinkage partnerships can help clarify movementsof liquidity between tiers, and potentially carveout room for pilot tests of co-branding of prod-ucts. To further the application of technology tobuilding low-cost delivery channels, guidelinesneed to be worked out for encashment and therole of agents. Likewise, discussion should takeplace on the possibilities for mini-branching andmobile vans for mobilizing deposits.

There is a legitimate need to ensureagainst adding systemic risk though any ofthese delivery channels. But given the well-documented barriers to access for low-incomeUgandans, deliberations should focus on find-ing the optimal balance of access and security.Industry actors at all levels should seek toengage BoU in active dialogue. Entities such asAMFIU, MDIs and donors can reprise the rolethey played in the highly consultative (and ulti-mately successful) deliberations surroundingthe MDI Act. They can be joined by otheractors which have a stake.

7. Focus support to SACCOs on bettermonitoring, regulation, and supervision,rather than on-lending. The very substantialfunding planned for Tier 4 institutions risksinvesting in historically weak institutions thatdo not enjoy adequate regulation and supervi-

sion. Capacity building programs are unlikelyto strengthen protection of poor people’sdeposits in SACCOs if oversight is not alsostrengthened.

The first requirement is a legal frame-work that distinguishes SACCOs from othercooperatives. In light of limited resources atBoU and MofPED, delegating supervision to anindependent body would be the most feasiblesolution. If this is the route chosen, a singlesupervisory body should be established to ensureconsistent monitoring and eliminate openingsfor regulatory arbitrage. Requiring SACCOs tosubmit to supervision by this entity would alsohelp avoid the conflicts of interest possible inapexes based on voluntary membership. Thegovernment should also make its backing of theentity clear; international experience stronglyindicates that the supervisory body should havethe legal authority to enforce its decisions.Finally, limited resources for a prudential super-vision could be concentrated on the largestSACCOs that represent the majority of depositsin Tier 4 institutions. Detailed mapping of theSACCO landscape would be necessary to under-stand whether a small cohort of relatively largeSACCOs exists to make this feasible.

Alternatively, a non-prudential systemof regulation could be tried. Even this morelimited monitoring would increase depositorprotection by requiring regular reporting,disclosure of institutional performance, andpossibly even a publicly posted notice inform-ing clients of an institution’s unregulated status.Better performance monitoring would also helpdonors better target their support to SACCOs,by providing information enabling them todifferentiate SACCOs according to prioritycriteria such as outreach, and track progressagainst performance-based funding contracts.

Regardless of design, the effectivenessof a regulatory and supervisory frameworkhinges on a realistic assessment of the resourcesavailable to implement it. In light of limitedresources, authorities should not regulate whatthey cannot supervise. Conveying the impres-sion of active supervision without the corre-sponding reality may actually increase risk todepositors.

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ANNEX I: SUMMARY MATRIX OF FINDINGS AND SUGGESTIONS

Uganda

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Level Opportunities Obstacles Suggestions

Clients à Documented evidence of demand for formal savings services among low-income savers

à Awareness of client demand in financial sector

à Client mistrust of financial institutions

à Little data on level of unbanked liquidity

à Lack of research on rural risk/return/liquidity preferences hamstrings advanced product design

(1) Create smart consumers of financial services

(2) Size the market and clarify preferences to design competitive products

Micro à Diverse range of institutions mobilizing small deposits

à Few branches of deposit-taking institutions relative to population

à Limited geographic outreach of regulated institutions

à Products not competitive with informal sector

(2) Clarify preferences to design competitive products

(3) Link institutions to combine outreach and security

(4) Invest in perfecting new delivery channels for MDIs and banks with interest in MF

(5) Explore innovative ways of managing excess liquidity in SACCOs

(6) Promote active dialogue with BoU on mitigating risks of new outreach methods

Meso à Abundant and knowledgeable sources of training and TA on deposit mobilization

à Active coordination among donors, including agreement to lend at or near market rates

à Consumer education is inadequate, as is reliable information about SACCO performance.

à SACCOs lack mechanisms to channel excess deposits into safe and profitable placements

à Accessible institutions not connected to payment system

à Excessive second-tier funding risks undermining SACCOs

(1) Create smart consumers of financial services

(4) Invest in perfecting new delivery channels for MDIs and banks with interest in MF

(5) Explore innovative ways of managing excess liquidity in SACCOs

(6) Promote active dialogue with BoU on mitigating risks of new outreach methods

Macro à MDI Law provides for regulation and supervision of deposit-taking institutions serving the poor

à High cost for current MDIs to expand or new institutions to become MDIs

à SACCOs lack proper regulatory framework and supervision

à Government programs may encourage start-up of many weak SACCOs

(4) Invest in perfecting new delivery channels for MDIs and banks with interest in MF

(6) Promote active dialogue with BoU on mitigating risks of new outreach methods

(7) Focus support to SACCOs on better regulation and supervision rather than on-lending

ANNEX II: SOURCES CONSULTED ON DEPOSIT MOBILIZATION IN UGANDA

INDIVIDUALS

Michael Atingi-Ego, Director, Research, Bank of Uganda (BoU)

Modesto O. Aola, Bank of Uganda (BoU)

Henry Bagazonzya, World Bank

David T. Baguma, Association of MicroFinance Insititutions in Uganda (AMFIU)

Justine Bagyenda, Acting Exec. Director Supervision, Microfinance, Bank of Uganda (BoU)

Steven Bangonzya, Head, Microfinance Competence Center, Uganda Institute of Bankers

Lucy Businge-Kugonza, Operations Manager, MicroFinance Support Centre Ltd. (MSCL)

Charles Byanyima, MicroFinance Support Centre Ltd. (MSCL)

Andrew Iappini, Development Alternatives, Inc. (DAI)

Wilson Kabanda, General Secretary, Uganda Credit and Savings Cooperative Union (UCSCU)

Solomon Kagaba, Microfinance Advisor, SNV

Alex Kakuru, Faulu Uganda

Agnes Kamya, Bank of Uganda (BoU)

Saliya Kanathigoda, Programme Advisor, GTZ (German Technical Cooperation) / Sida(Swedish International Development Cooperation Agency)

James Karama, Post Bank

Lance Kashugyera, Coordinator, PSD/MSC Policy Unit, Ministry of Finance, Planning andEconomic Development (MoFPED)

Fabian Kasi, Executive Associate Director, Finca Uganda

Grace Kasisira, Bank of Uganda (BoU)

Mathias Katamba, Head of Business Development, PRIDE Uganda

Emmanuel Kawuki, Aitec International Ltd.

Lawrence Kiiza, Director, Economic Affairs, Ministry of Finance, Planning and EconomicDevelopment (MoFPED)

Gerald Kikambi, PRIDE Uganda

Terri Kristalsky, Chief of Party, Rural SPEED

Aomu Mackay, Bank of Uganda (BoU)

Dipankar Mahalanobis, Managing Director, MicroCare

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Henry Mbaguta, Assistant Commissioner, PSD/MSC Policy Unit, Ministry of Finance, Planningand Economic Development (MoFPED)

Leonard Msemakweli, General Secretary, Uganda Cooperatives Association (UCA)

Rehema Mutazindwa, Head of Human Resources, PRIDE Uganda

John Muumba, Uganda Cooperatives Association

Paul Musoke, CEO, PRIDE Microfinance

Ricahrd Mwami, MTN Village Phone

Elliot Mwebya, Bank of Uganda (BoU)

Robina Nakato, Bank of Uganda (BoU)

Josephine Nakkomo, Head of Business Development, Nile Bank

Isaac Nsereko, Head of Retail, DFCU

Paul Nyakairu, CEO, Commercial Microfinance Ltd. (CMFL)

Peter Okawulo, General Manager, Uganda Finance Trust

Henk Van Oosterhout, Programme Manager, SUFFICE

Anthony Opio, Director Non Bank Financial Institutions, Bank of Uganda (BoU)

Gunilla Ouku, Head of Retail Banking, Nile Bank

Richard John Pelrine, Rural SPEED

Paul Rippey, Manager, Financial Sector Deepening Uganda (FSDU)

Patrick Rujumba, Marketing Executive, AIG

Rodney Schuster, Uganda Microfinance Union (UMU)

William Sekabembe, Head of Retail Performance, Barclay’s Bank

Daniel Herbert Sentumbwe, Stromme Foundation

Priscilla Serukka, Regional Director, Stromme Foundation

Eldard Ssebbale, Rural SPEED

Albert Ssemukutu, MSE Specialist, United Nations Industrial Development Organization(UNIDO)

William Steel, World Bank

Adrian Stone, Enterprise Development Advisor, Department for International Development(World Bank)

L.K. Tisasirana, Ministry of Finance, Planning and Economic Development (MoFPED)

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Alfred Tumwebaze, Finance Manager, Faulu Uganda

Geoffrey Tusiime, Post Bank

Jackie Wakhweya, Cognizant Technical Officer, United States Agency for InternationalDevelopment (USAID)

Clare Wavamunno, Finca Uganda

Patrick Woyaga, CERUDEB

DOCUMENTS

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Bank of Uganda. November 2005. “Monthly Financial and Economic Indicators.” Kampala:Bank of Uganda Research Department.

—————. September 2005. “Quarterly Economic Report: Volume 03/2005.” Kampala: Bankof Uganda Research Department.

—————. 2005. Supervision Function Annual Report, 2004. Kampala: Bank of UgandaResearch Department.

—————. 2000. Stocktaking and Situational Analysis Report. Kampala: Bank of Uganda,National Payment System Project.

Goodwin-Groen, Ruth, Till Bruett and Alexia Latortue. October 2004. “Uganda MicrofinanceSector Effectiveness Review.” Washington, DC: CGAP.

International Monetary Fund. April 2003. “Uganda Financial System Stability Assessment.”IMF Country Report No. 03/97.

Isern, Jennifer and David Porteous. June 2005. “Commercial Banks and Microfinance:Emerging Models of Success.” Focus Note 28. Washington, DC: CGAP.

Jazayeri, Ahmad. 2005. “Member-Owned Financial Institutions: Lessons from Uganda andTanzania.” Manuscript.

Kaffu, Ernest and Leonard Mutesasira. 2003. “Competition Working for Customers: TheEvolution of the Ugandan Microfinance Market Sector.” Kampala: MicroSave.

Kalyango, David. May 2005. “Uganda’s Experience with the Regulatory and SupervisoryFramework for Microfinance Institutions.” Essays on Regulation and Supervision No. 9. CollegePark, MD: Microfinance Regulation and Supervision Resource Center, IRIS.

Kappel, Robert, Jann Lay and Susan Steiner. 2004. “The Missing Links—Uganda’s EconomicReforms and Pro-Poor Growth.” Eischborn: GTZ.

Kohler, Wolfgang. 2005. “Big Plans, Small Sums.” In Akzente Special. Eischborn: GTZ.

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Ledgerwood, Joanna, Deborah Burand and Gabriela Braun, eds. November 2002. “The MicroDeposit-Taking Institutions Bill 2002: Summary of Workshops and Information ExchangeEvents.” Kampala: Bank of Uganda/GTZ/USAID/SPEED.

Magnette, Nicolas and Digby Lock. August 2005. “What Works: Scaling Microfinance with theRemote Transaction System.” Washington, DC: World Resources Institute.

Meyer, Richard, Richard Roberts and Adam Mugume. 2004. “Agricultural Finance in Uganda:The Way Forward.” FSD Series No. 13. Kampala: GTZ/Financial Systems DevelopmentProject.

Ministry of Finance, Planning and Economic Development. 2005. “Government Plan toEnhance Rural Financial Services in Uganda.” Kampala: Government of Uganda.

—————. 2004. “Poverty Eradication Action Plan 2004-2008.” Kampala: Government ofUganda.

Mukwana, Peter and Grace Sebageni. 2003. “An In-Depth Assessment of the UgandanMicrofinance Market: Qualitative Side Study Report.” Kampala: MicroSave.

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Musoke, Isaac. 2004. “Knowledge, Attitudes and Practices of Consumers of MFI Services in theDistricts of Masaka and Mbale.” Kampala: CDFU/FSDU.

Mutesasira, Leonard. 1999. “Savings and Needs in East Africa: An Infinite Variety.” Kampala:MicroSave.

Nannyonjo, Justine and James Nsubuga. 2004. “Recognizing the Role of Micro FinanceInstitutions in Uganda.” BoU Working Paper. Kampala: BoU Research Department.

Okorut, Nathan Francis, Margaret Banga and Ashie Mukungu. 2004. “Microfinance and PovertyReduction in Uganda: Achievements and Challenges.” Research Series No. 41. Kampala:Makerere University Economic Policy Research Centre.

Pelrine, Richard and Olive Kabatalya. September 2005. “Savings Habits, Needs and Priorities inRural Uganda.” Kampala: USAID/Rural SPEED.

Rosenburg, Richard and Jessica Murray. Forthcoming. “Should Donors Continue To SupportCommunity-Managed Loan Funds?” Washington, DC: CGAP.

Sebageni, Grace, Steven Kaggwa and Leonard Mutesasira. 2002. “Where There Is No Banker:Financial Systems In Remote Rural Uganda.” Kampala: MicroSave.

Staschen, Stefan. 2003. “Possible Mechanisms to Regulate Tier 4 MFIs in Uganda.” Kampala:GTZ/Financial System Development Programme.

Steadman Group. June 2005. “Rural Savings, Needs, Habits and Priorities Study: QualitativeReport.” Kampala: USAID/Rural Speed.

Uganda Bureau of Statistics. 2004. “Main Report, 2002 Census.” Entebbe: Uganda Bureau ofStatistics.

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Wright, Graham and Paul Rippey. September 2003. “The Competitive Environment in Uganda:Implications for Microfinance Institutions and their Clients.” Kampala: MicroSave/FSDU/ Imp-Act.

Wright, Graham and Leaonard Mutesasira. 2001. “The Relative Risks to the Savings of PoorPeople.” Kampala: MicroSave.

Young, Robin, John Gutin, John Jepsen, Mary Miller, Nancy Natilson, Tony Singleton andLynne Curran. 2005. “Banking the Underserved: New Opportunities for Commercial Banks.”London: DFID/DAI.

Zikisooka, Francis. “Challenges of Building the Capacity of Sustainable MicrofinanceInstitutions.” The Microfinance Banker Vol. 4, Issue 3, 2004.

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ANNEX III: MAP OF POPULATION PER BRANCH OF DEPOSIT-TAKING INSTITUTIONS BY DISTRICT

IN UGANDA