Government Is urged to Start Microfinance Bank
By Stephen Wandera Ouma
KAMPALA – The Ministry of Finance Planning and Economic Planning has plans to set up the Uganda Microfinance Development Bank (UMDB), “I have instructed the technical staff to initiate the process of starting UMDB to address the need for capital for small businesses. Uganda Development Bank Limited (UDB) only caters for big investments,” he said.
Mr Haruna Kasolo Kyeyune, the state minister for Microfinance, has said the bank will finance Savings and Credit Cooperative Organizations (SACCOs) and other Small and Medium Enterprises (SMEs) that commercial banks and other institutions do not finance due to the high interest rates and lack off collateral.
Mr Kasolo was on Wednesday, July 17, 2024, speaking at the 2nd National Microfinance and Savings Groups’ Conference 2024, themed “Leveraging collaborations, partnerships and promoting a savings culture to foster socio-economic transformation.
The two-day conference would enhance Uganda’s microfinance sector’s effectiveness and inclusivity by gathering government officials, policymakers, banks, microfinance institutions, international organizations, community leaders, and SACCO representatives.
Kasolo’s revelation followed Prof. C. S. Reddy, the Chief Executive Officer, of Mahila Abhivriddhi Society’s recommendation to the government to institute a policy to support savings groups.
Prof. Reddy is a microfinance expert from India with 32 years of experience in the development sector, comprising microfinance, microenterprise, and agriculture value chain development.
“The foundation of SACCOs is the way forward in Uganda by instituting an enabling framework and environment and facilitating the savings groups with links to the banks where to save because they are fragile,” he advised.
“SACCOs have to reinvest their savings and not cash out. They should have a federation for self-regulation and form their bank because commercial banks charge high interest rates.”
Mr Roy Baguma, the Uganda Energy Credit Capitalisation Company Managing Director welcomed the idea of setting up a bank to fund SACCOs, “the direction to take to boost economic development.”
Mr Ramathan Ggoobi, the Permanent Secretary of the Ministry of Finance Planning and Economic Planning, highlighted the importance of financial inclusion, particularly in rural areas. He urged the microfinance sector experts to permeate the rural areas and link financial resources to Ugandans throughout the country.
Michael Atingi-Ego, Deputy Governor of the Bank of Uganda, called for the partnership to reach the rural areas, “We need to make a strategy for all the stakeholders, meeting regularly to ensure we achieve this goal. There is a need for capacity building, especially bookkeeping and financial literacy for these savings groups.”
Ms. Vanesa Muhwezi, the manager in charge of microfinance institutions at Uganda Microfinance Regulatory Authority (UMRA), said UMRA is profiling all Tier 4 Microfinance Institutions (MFIs), Money Lenders, and SACCOs.
“We will display them on our website, showing their locations, their services, and the interest rates they charge. We are also linking them to the Bank of Uganda’s Credit Reference Bureau as a means of transparency in the financial sector,” she explained. She also urged borrowers to find out the interest rates before getting loans as some borrow without knowing that there is a monthly charge they have to put up with, and they lose the collateral.
She explained UMRA’s role in the financial sector as an autonomous body that supports the sustainable growth of Tier 4 Microfinance Institutions and Money lenders through effective regulation, licensing and supervision.
Ms Muhwezi added, “The Authority regulates, licenses, and supervises Tier 4 MFIs and lenders. Tier 4 MFIs include Saving and Credit Cooperatives (SACCOs), Non-Deposit Microfinance Institutions (NDT-MFIs), and Self-Help Groups (SHGs).”
Uganda’s microfinance sector has significantly evolved since the establishment of financial cooperatives/Saccos in the 1960s, followed by the emergence of the microfinance movement in the 1990s, and now transitioning into a phase of commercialization and regulation within the industry.
Despite the advancements, the sector requires targeted interventions from various stakeholders to address their issues. This includes addressing the need for expanding the savings groups segment to reach the marginalized from formal financial services and banking penetration in the most remote areas.
In response to this dynamic landscape, the Finance Ministry, in partnership with Stanbic Bank, organised the conference through the ministry’s Financial Inclusion Support Unit (FISU).
In addition, the conference was designed to identify new ways for households and microfinance institutions to leverage digital financial inclusion, gender, and social protection in finance, consumer protection and financial literacy, partnerships and collaborations, the role of microfinance in climate finance, and data to drive access to microfinance services.
