RIF Regulation Mapping: Uganda
April 2016
Written by Heather Clark, Independent consultant
Edited by Jacqueline Mbabazi, AMFIU
SPTF, in conjunction with its Responsible Inclusive Finance (RIF) Working Group[1], developed a framework that maps countries’ regulation to responsible inclusive finance issues. The framework is designed to help networks and financial service providers better engage with regulators on RIF issues, as well as to identify examples of how regulators can integrate such issues into regulation.
SPTF used this framework to map several countries’ regulatory issues, and all mappings can be found on the SPM Resource Center at . For any questions, updates or additions to the mappings, please email .
Country / Uganda1. Landscape: MFI Sector Size and Maturity, FSPs providing MF
Microfinance in Uganda started in the mid-1980s, mainly as donor-funded projects. As of 2012, there were more than 2,000 MFIs in the country, including Savings and Credit Cooperative Organizations (SACCOs), NGO MFIs, and community based groups.[2] As of 2015, the Bank of Uganda (BOU) reported 3 Microfinance Deposit Taking Institutions (MDIs), 3 credit and finance companies (which are also authorized to mobilize deposits), and 25 commercial banks.[3] The Ministry of Trade, Industry and Cooperatives reported more than 1,500 registered SACCOS as of the end of 2015.[4]
The financial sector in Uganda is divided into Four Tiers: Tier 1 – Commercial banks; Tier 2 – Credit Institutions and Finance Companies; Tier 3 – MDIs; and Tier 4 –SACCOS, financial NGOs and all other non-deposit taking financial institutions. Tiers 1-3 are regulated and supervised by the BOU.
The Association of Microfinance Institutions of Uganda (AMFIU) reports that by the end of 2012 the microfinance industry served almost 1.4 million depositors and 553,000 borrowers.[5] With the exception of MDIs and a few banks that serve the microfinance clientele, the majority of the microfinance industry is unregulated both in terms of the number of institutions (SACCOS, NGO MFIs, and community groups) and the millions of customers that they serve.
Financial inclusion is low. The number of the population holding accounts in formal banks is 4 million, or 33% of the 12 million who are bankable. The savings-to-GDP ratio is still low at 16%. In addition, financial intermediation is poor as indicated by the stock of private sector credit of 11.8% of GDP. [6]
The BOU adopted a definition of financial inclusion used by FinMark Trust. The strands focus on the financial system in its broadest sense and categorize all adults into one of three broad segments: formally included, informally served or financially excluded.[7] According to a recent FINSCOPE survey, 20.3% of the adult population has an account at a formal bank, 33.7% with a formal non-bank financial institution, 30.6% with an informal institution (SACCO, NGO MFI or community group) and 15.3% are excluded.[8] Formal institutions are lessprominent in rural areas than urban areas; they only serve 14% of the rural population. Informal institutions play an important role in the rural service provisions and serve approximately 12% of the rural population.[9]
Trends In the Ugandan Financial Sector from 2006 to 2013:[10]
Over the last decade, access to financial services in Uganda has improved significantly, mostly driven by the expansion in mobile-money services. Overall, 85% of the adult population aged 16 years and above are financially included, an improvement from 70% in 2009 and 38% in 2006.[11]
- The share of individuals operating a bank account has steadily increased, rising to 44.4% in 2014, up from 20% in 2011, according to the 2014 World Bank Global Financial Inclusion (Global Findex) Database. The increase is driven by expansion in non-bank formal institutions, in response to growth in mobile money.
- Financial inclusion through formal banking by the adult population remained unchanged, while the number of commercial banks and commercial bank’s branches grew. (FinScope)
- Ugandans were about twice more likely to save exclusively with informal institutions than with formal institutions. At the national level, use of informal institutions increased by 15%, but it was marked with a growing gender and rural/urban divide.
- The FinScope survey revealed that access to credit and borrowing was very low in Uganda, with only 4% of the adult population accessing credit from formal banking institutions, 4% accessing credit from nonbank formal financial institutions, and 20% accessing credit from informal services.
- In the World Bank’s “Doing Business Report” Uganda’s Global Doing Business Index for the ease of getting credit improved. Positioned at number 158 out of 185 countries in 2008, in 5 years the country’s rank increased to 40th. In addition, the depth of credit information within the country, previously ranked as 0 on a scale of 0-6, is now ranked at a level 5, due to the establishment of a credit reference bureau in 2008 and previous accompanying legislation and regulation. (See Section 4, below.)
- Half of adults use mobile money services, though only 34% were formally registered; a significant proportion accesses services through a 3rd party account. (FinScope)
- From 2004 to 2013, BOU reports that physical access to financial services increased. The banking system’s overall physical network continued to expand, with the total number of bank branches in the country increasing from 167 branches in 2004 to 658 branches in 2013. Using the available data from the 2011 SACCO census, there were about 2094 SACCO branches representing 1.3 branches per every 10,000 adult Ugandans.
- The ATM network also expanded, increasing the number of ATMs from 152 in 2004 to 835 in 2013.
- Despite the significant strides in expanding the number of access points by supervised financial institutions (SFIs), the proportion to population is still low: both the number of branches for every 10,000 adults and the number of ATMs for every 10,000 adults are still below 1 access point at national level.
- Access is uneven by district: 41% of districts in Uganda lack access to any bank branch, 41% and 48% of districts out of the 112 districts in Uganda lack access to any bank branch and ATM, respectively
- Available data from the 2011 SACCO census indicate 2094 SACCO branches representing 1.3 branches per every 10,000 adult Ugandans. Unlike SFIs, the regional distribution of SACCOs is higher in rural areas.
- Alternative channels help in reaching areas with limited or no banking presence. Since the inception of mobile money services in Uganda (2009), the number of registered subscribers has increased from 10,010 in 2009 to 14.2 million in December 2013, representing over 80% of the adult population with access to mobile money. The number of access points as measured by agent networks equally increased to serve the users of mobile money services. By December 2013, there were over 50,000 mobile money agents in the country. This represents about 27.8 access points per every 10,000 adults, higher than the outreach for other channels.
Insurance: The Uganda Insurance Association notes that the insurance industry is still underdeveloped, with 2% of the adult population using formal insurance. The FinScope Survey shows that 43% of the 45% of adults who use insurance, use informal insurance. Adults prefer informal insurance for the following reasons: 45% “easier to join an informal group,” 18% prefer an informal group, 15% “can’t afford formal insurance.” Overall, the use of insurance as a risk management technique is low compared to other techniques, such as borrowing from family and friends, seeking donations, selling assets, and reducing consumption. BOU notes, despite an increase in service level and effort to introduce micro-insurance, there are no official regulations for micro-insurance or covering distribution channels, information disclosure or transparency requirements, particularly for micro-insurance.
2. Regulators/Supervisors Responsible for Microfinance
The Bank of Uganda (BOU) is the regulator and supervisor of the formal banking sector, including commercial banks, credit institutions and finance companies, Microfinance Deposit Institutions (MDIs), Forex Bureau and Money Remitters. BOU regulated and supervised financial institutions that mobilize deposits, including banks, Microfinance Deposit Institutions (MDIs), and credit and finance companies that are authorized to mobilize deposits and make collateralized and non-collateralized loans to customers.
The Bank of Uganda is also in charge of approval and supervision of mobile money services. It can issue directives regarding mobile money operations. The Uganda Communications Commission (UCC) is responsible for licensing and supervision of mobile network operators (MNOs). Mobile money in Uganda is a financial service provided by supervised and licensed financial institutions in partnership with mobile money service providers.
The BOU issued financial consumer protection guidelines in 2011 which BOU supervised financial institutions are encouraged to follow. The guidelines are thorough, covering fair treatment, transparency, preventing over-indebtedness, privacy of client data, and mechanisms for complaints resolution. (See Section 5 for more detail.) The BOU is stepping up its financial consumer protection role with increased communications and establishment of a “Key Facts” document, which must be presented to any customer of a BOU-supervised financial institution.
Key challenges include: supervision/enforcement of the guidelines may be weak, and the guidelines apply only to BOU-supervised financial institutions and their agents, leaving a large gap in comprehensive financial consumer protection.
Contact: Head Office
Plot 37/45 Kampala Road, Kampala
Telephone: +256-414-258-411/6; +256-414-258-060/9; +256-414-259-090
Email:
The Insurance Regulatory Authority (IRA) regulates and supervises the insurance sector, including insurance companies and brokers. The IRA is mandated to license all insurance players annually before they transact insurance business. In 2016, it granted licenses to 85 players to transact insurance business, including 29 insurance companies; one re-insurer, six Health Membership Organizations (HMOs), 29 insurance brokers, one re-insurance brokerand 18 Loss Assessors/Adjusters.The IRA renews licenses of all insurance players annually as a way to scrutinize their viability and therefore protect the interests of policyholders and beneficiaries. Part of the IRA’s mandate is to safeguard the rights of insurance policyholders and insurance beneficiaries to provide a bureau to which the public may submit complaints.
The IRA is a specialist member of the Alliance for Financial Inclusion (AFI).
Contact:
Plot5, Kyadondo Road, Nakasero. Legacy Towers, Block B, 2nd Floor. Kampala 22855 - Uganda
Telephone: 0312-266364/ 0414-346712 / 041-4253564
The Uganda Securities Exchange (USE) is the only approved Stock exchange in Uganda, and is regulated by the Capital Markets Authority.
Contact: Capital Markets Authority
8th Floor, Jubilee Insurance Centre
Nakasero, Kampala, Uganda
P. O. Box, 24565, Kampala, Uganda
Tel: +256 414 342788/91 +256 312 264950/1
Email:
Website:
SACCOS
SACCOS, the most prevalent financial institutions engaged in microfinance in Uganda, are not regulated or supervised by a central, specialized financial authority. SACCOs are member-based financial institutions registered under the Cooperatives Act issued by the Ministry of Trade, Industry and Cooperatives (MTIC). The Department of Cooperatives in MTIC is responsible for policy, registration and supervision of SACCOs alongside other cooperatives. Some of the functions of the Department are delegated to the District Local Governments.
SACCOS also belong to professional Unions, such as the Uganda Teachers’ Savings and Credit Cooperative Union, AMFIU and others. The Uganda Cooperative Savings and Credit Union, Ltd is the apex for SACCOS. The apex bodies provide oversight, advocate for enabling regulation, offer training service and, sometimes, operate a finance facility. For example, the UCSCU operates a Central Finance Facility, a fund where SACCOs place their excess liquidity as a saving and also can access credit facilities from within the Union.
Tier 4, such as SACCOS and MFI NGOSs operate under various laws, none of which regulates them as financial institutions. The SACCOs are registered and in principle supervised under the Cooperative Societies Statute (1991) by the Ministry of Trade, Tourism and Industry. The Statue provides for incorporation/ registration, governance, management, regulation, supervision, operation and business conduct of all cooperative societies. The other governing laws for Tier 4 include the Companies Act (1969), the Money Lenders Act (1952) and the NGO Registration Act (1989). Registration procedures and requirements do not pose any regulatory mechanism for controlling and censuring entry into the sector. Apart from the requirement that the society must have at least 30 members, there are hardly any other conditions to ensure minimum adherence to prudential standards before registration.[13]
Contact: UCSCU
Headquarters Offices address 10 Kms Bombo Road Maganjo Wakiso District
P.O Box 6203 Kampala
Tel: +256414233601 Fax: +256414233598
Email: , Website:
Contact: Ministry of Trade,Industry and Cooperatives
Plot 6/8, Parliamentary Avenue
P.O. Box 7103 Kampala, Uganda
Tel: 256-41-314000
NGO MFIs: Are not officially regulated, however if they become members of the Association of Microfinance Institutions in Uganda (AMFIU), they must sign and abide by a code of conduct. (See below for details on AMFIU.)
The Association of Microfinance Institutions of Uganda (AMFIU) is the national umbrella organization of the microfinance industry in Uganda. AMFIU is a member of the Africa Microfinance Network (AFMIN) and the SEEP Network. By December of 2014, AMFIU had 90 ordinary members, who are engaged in direct delivery of microfinance services as a core or significant activity, including NGO MFIs, MDIs, banks, SACCOs, and 30 Associate members – institutions and individuals supporting the development of the microfinance sector in various ways such skills development, provision of software systems, wholesale funding and consultancy. They include wholesalers of funds, training institutions, consultancies, government and donor projects.[14]
AMFIU has a set of criteria that an institution must fulfill before being admitted as a member. It also has a code of conduct for members and promotes a double-bottom line goal for MFIs among its members. AMFIU may terminate membership if the member fails to fulfill obligations under the articles and laws of the Association. AMFIU members represent all Tiers of financial institutions in Uganda, serving over 3.1 million clients, and operating in 90 districts cutting across all regions. Members operate a network of 633 outlets; over half of them are run by 6 institutions: BRAC Uganda, Centenary Rural Development Bank, Post Bank (U) Ltd, Pride Microfinance (MDI), Finance Trust and FINCA Uganda.[15]
AMFIU initiatives includeraising awareness on social performance management, training in SPM tools and resources for members, a Consumer Code of Conduct and a Consumer Handbook for MFI training in consumer protection practices. AMFIU also operates a complaints handling and redress system that serves MFI customers. The service is appreciated by the BOU that often refers customers of non-BOU supervised MFIs to AMFIU.[16]
Contact: David Baguma, Executive Director, AMFIU
Plot 679, Wamala Rd
AMFIU House, Najjanankumbi
P.O Box 26056
Kampala, Uganda.
Tel: (256) 414 259176(256) 414 259176, 393 265540
Email: Website:
Uganda Bankers Association
Founded in 1981, Uganda Bankers Association is the umbrella body of commercial banks in Uganda, with a membership of 26 commercial banks and one development bank. The Association has a code of conduct for members, offers a complaints handling and redress system for customers of member banks, and offers a variety of consumer protection information on its website, including consumer rights and responsibilities with respect to various products and communications with banking institutions, how to file a complaint with the UBA and the steps in the process. The UBA also launched a financial literacy campaign in 2015 for the public to increase financial awareness among Ugandans and to enhance knowledge about banking services.
Contact:Mr. E.T Kikoni – Executive Director
Uganda Bankers Association, Plot 10 Buganda Road
P.O.Box 8002, Kampala Tel: (256) 414 343 199 Fax: (256) 414 342 334
Email: service on the website
3. National Strategy for Financial Inclusion (NSFI)
In 2011, the GOU established a national financial inclusion strategy. The overall objective of the Financial Inclusion Project is to increase access to financial services and empower the users of financial services to make rational decisions in their personal finances so as to contribute to economic growth.
The project is built upon four pillars: 1) Financial Literacy; 2) Financial Consumer Protection; 3) Financial Innovations and 4) Financial Services Data and Measurement. Each pillar has a designated Sub-Committee that handles implementation. The Sub-Committees are drawn from relevant functions and departments across BOU and from GIZ. (BOU Financial Inclusion project).BOU partners with institutions such as the Uganda Bureau of Statistics, the Uganda Cooperative Savings and Credit Union, the Insurance Regulatory Authority and the Association of Microfinance Institutions in Uganda. It also collaborates with relevant Government Ministries and Departments,supervised financial institutions,the UK Department for International Development (DFID), GIZ, the Alliance for Financial Inclusion and the Bill and Melinda Gates Foundation.[17]
The government’s current strategy to improve access to financial services is based on the 2005-15 microfinance policy developed by the Ministry of Finance, Planning and Economic Development (MFPED). The implementation of the strategy has mainly taken the form of the establishment of SACCOs in each sub-county by the end of 2015. However, the impact of this program has been limited, owing to the fragmentation of providers, political pressure, and the program’s disbursement problems. Halfway through 2015 it seems unlikely that these goals will be met.[18]
Microscope 2015 ranksUganda 23rd in establishing an enabling environment for financial inclusion, which puts it in the largest group of countries that have some, but not many enabling policies and regulations, the largest group of countries included in the index. Uganda’s rank has not changed since last year, and it scores 50 out of 100. Uganda’s ranking relative to other countries has decreased since last year, since other countries have risen in status.[19]
With respect to the region, Uganda outperforms the regional average in the following categories: Government support (by 25 points), regulatory and supervisory capacity (5); credit portfolios (11); deposit taking activities (45); electronic payments (15); credit reporting systems (8); market conduct rules (32); dispute resolution (by 6 points). Uganda falls behind regional averages in: prudential regulation (by 5 points); insurance for low-income populations (by 22); branches and agents (by 60); and non-regulated lenders (by 8 points).
The proposed Microfinance Regulatory Authority for SACCOS and NGO MFIs (classified as Tier 4financial institutions under a regulatory and supervisory framework)[20] has been under discussion for quite some time. At the end of May 2015, the bill was in the final stages of preparation before submission to the Cabinet. Currently, the Department for Financial Services (DFS) is focusing its attention on the necessary preparations to make the new framework operational.[21] Industry advocates are in favor of such a regulatory authority to improve market conduct and general consumer confidence and protection, particularly in rural areas and for women customers, who make up the greatest share of customers who use unregulated financial services. If passed, a new authority would formally regulate and supervise MFIs and large SACCOs, as well as establish a SACCO stabilization fund and savings-protection scheme. It also would provide for a central financing facility for the channeling of state funds.
The government also has taken steps to improve financial literacy and knowledge of consumer rights in relation to financial services. In March 2015, the BOU announced a national communications campaign to increase public awareness of the Financial Consumer Protection Guidelines. As of April 2015, all customers of SFIs will be issued with Key Facts Documents for any deposit or loan.
Challenges:The government has proposed several amendments to the current laws governing the financial sector, which would allow financial institutions to make use of agents to reach a greater number of customers. However, the appearance of many fraudulent MFIs, and a continued sense of a lack of transparency in the banking industry, has eroded public confidence in many financial products offered by formal and informal institutions alike.[22]
Tier 4 financial institutions, which serve the majority of poor and rural consumers, have grown in prominence while the formally regulated banking sector has relatively decreased in serving the microfinance sector. Despite plans and progress, Tier 4 regulations have not yet been approved.
While there are financial consumer protection regulations and guidelines for BOU SFIs, financial consumer protection falls under multiple agencies, and different regulations for the institutions that they regulate.
There are no disclosure rules requiring insurance providers to share information with consumers or official regulations covering micro-insurance distribution channels, despite an increase in service levels and efforts to introduce micro-insurance. Additionally, there continues to be a limited understanding of insurance and its benefits, as well as a very low level of trust for insurance providers. [23]
4. Banking Laws: Establishing Laws and Recent Laws
Various laws and legislation govern the regulation of the financial sector. The Banking Sector regulated by Bank of Uganda is governed by: