What you need to know:
Reason. High operating costs are said to partly stifle their growth
Kampala. Much as the minimum startup capital requirement for a Microfinance Deposit Taking Institution (MDI) is much lower than that of a bank, few people are signing up for them.
The slow growth of MDIs in Uganda over the past years is a grim picture for Bank of Uganda because there are still many people who are not being served by these institutions.
The number of MDIs and number of accounts in MDIs in the country since 2006 indicates a sluggish growth in the sub-sector.
“For an MDI, the minimum capital is Shs500 million, whereas for a commercial bank, it is Shs25 billion,” Mr Benedict K. Ssekabira, the director commercial banking at Bank of Uganda said last week during a microfinance conference in Kampala.
He was delivering a speech by Mr Emmanuel Tumusiime Mutebile, the governor Bank of Uganda.
In the speech, Mr Mutebile said in 2006 there were four MDIs. The number dropped to three in 2010 and in 2014, the number stayed at three. Although statistics show that the total number of MDI accounts has increased since 2006 from 152,448, to 458,033 in 2010 and 776,179 in 2014, experts say this growth has been slow.
“Although the number of deposit accounts with MDIs has increased fivefold since 2006, it is still small in comparison with the number of deposit accounts held in commercial banks. Commercial banks held more than five times as many deposit accounts as MDIs in 2014,” said Mr Mutebile in the speech.
He added that as such, MDIs have only made a modest contribution to reducing financial exclusion over the past decade, the business model of MDIs, which involves a high volume of small loans and deposits, has not always been successful in Uganda, possibly because the operating costs have been high.
He said in the 2000s, Uganda, along with many other countries, took the view that at least some of the microfinance institutions should be allowed to accept deposits, because their customers would benefit from access to deposit facilities and because microfinance institutions (MFIs), could grow more rapidly and be more sustainable if they mobilised deposits.
“Therefore, specific legislation was introduced in 2003 to allow MFIs to take deposits. To safeguard the deposits, the legislation imposed regulations on Microfinance Deposit Taking Institutions (MDIs) and brought them under the regulatory support of the Bank of Uganda,” Mr Mutebile explained in the speech.
The licensed Microfinance Deposit Taking Institutions (MDIs) as at June 2011 included FINCA Uganda Ltd, PRIDE Microfinance Ltd, Uganda Finance Trust Ltd and UGAFODE Microfinance Ltd. Uganda Finance Trust Ltd has since turned into a commercial bank.