BoU to start regulating Saccos

Many Ugandans, especially in rural areas, have been operating Saccos that are not regulated. PHOTO | file 

What you need to know:

Under the guidelines that will operationalise the Tier IV Microfinance and Money Lenders Act 2016, Saccos, whose savings are in the excess of Shs5.5b, will be required to write to Bank of Uganda for a licence

Bank of Uganda (BoU) has said it is developing guidelines that will formalise its regulatory mandate among selected Savings and Credit Cooperatives (Saccos). 

In its Annual Supervision Report published early this month, the Central Bank said it was working with the ministries of Finance and Justice and Constitutional Affairs to develop the Microfinance Deposit-taking Institutions (Registered Societies) Regulations, 2021, which will pave way for the supervision of registered societies otherwise known as Saccos.

“Once finalised, these regulations shall operationalise the amendments to the Tier IV Microfinance and Money Lenders Act 2016 and pave the way for the supervision of select registered societies (Saccos) by the Central Bank.

The financial sector in Uganda is sub-divided into four tiers with composition under tier one being commercial banks while tier two is composed of credit institutions and finance companies.

Tier three is composed of microfinance deposit-taking institutions while tier four is composed of Saccos, non-deposit taking microfinance institutions, self-help groups and community-based microfinance institutions.

All financial institutions under tier one to three are regulated and supervised by the Bank of Uganda.

The Bank of Uganda guidelines shall, among others, provide a licensing regime, detailing structure of annual fees and renewal of licence, publication of Saccos and circusmstances under which a licence is revoked.

Under the Tier IV Microfinance and Money Lenders Act 2016, a Sacco shall not carry on the business of financial services unless it is registered and licenced as a society.

The Act also prohibits Saccos from providing financial services to none members while mobilisation of funds from members and borrowing shall be guided to an amount that does not exceed the allowable limit.

It also notes that a Sacco shall be registered after it has provided a number of requirements, among which include a certified copy of the certificate of registration, evidence that the Sacco meets the minimum equity requirements, information on the prospective place of business, evidence of payment of the prescribed fees, statement on the objectives of the registered society and evidence of membership and shareholding of members.

Other requirements include a statement on the economic and financial environment of the Sacco, organisational structure and management, a business plan, credit policies and lending procedures.

The Tier IV Microfinance and Money Lenders Act was derived from amendments to the Micro Finance Deposit Taking Institutions Act, 2003, which introduced the phrase registered society to mean cooperative society registered under the Cooperative Societies Act.

The amendments require such registered societies or Saccos, which intend to provide financial services among its members, to formally write to Bank of Uganda for a licence, if their voluntary savings are in excess of Shs5.5b.

Mr Moses Kaggwa, the Ministry of Finance a acting director for economic affairs, yesterday told Daily Monitor that large Saccos shall be regulated by Bank of Uganda while others will be regulated by the Microfinance Regulatory Authority and the Registrar of Cooperatives under the Ministry of Trade.

It is difficult to estimate the number of Saccos in Uganda, given that many of them are not registered. 

Key considerations       

According to the Tier IV Microfinance and Money Lenders Act 2016, a licence shall indicate the location of operation for which the it is issued and the issuer will take into account whether the Sacco will be operated responsibly, the nature and sufficiency of the financial resources of the applicant and effectiveness of the business plan submitted by the applicant for the future conduct and development of the business of the institution.

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