Microfinance institutions demand bank status
What you need to know:
- While appearing before Parliament’s Finance Committee, the team led by Ms Jacqueline Mbabazi, the executive director of the Association of Microfinance Institutions of Uganda (AMFIU), said the elevation will give them an opportunity to mobilise resources which can be used to bring down the current high interest rates.
Microfinance institutions and money lending firms are pushing to be recognised as microfinance banks, which they say will give them visibility and trust among the clients they serve.
Currently, all microfinance institutions are categorised as microfinance deposit-taking institutions (MDIs) and divided under four tiers.
While appearing before Parliament’s Finance Committee, the team led by Ms Jacqueline Mbabazi, the executive director of the Association of Microfinance Institutions of Uganda (AMFIU), said the elevation will give them an opportunity to mobilise resources which can be used to bring down the current high interest rates.
Ms Mbabazi said currently, they borrow money from commercial banks at high interest rates and later on lend to the borrowers at fairly higher interest rates.
“When the MDIs were regulated in 2003, by 2007, their performance had tripled, with serving more low-income earners and being able to ensure they have a place where to save and where they can borrow. The MDIs majorly target low-income earners and the economically active poor and vulnerable groups such as the youth, women, people with disabilities (PWDs) and refugees, some of whom have been thrown out of the mainstream conventional banking,” she said.
She said the average loan amount for the MDIs stands at Shs2.5m, while those of the conventional banking sector stands at Shs29m, making many people who cannot afford bank loans to run to the MDIs.
She said by transiting into microfinance banks, they will build consumer confidence and improve the saving cultures among Ugandans.
Ms Mbabazi said since microfinance institutions are supervised by the Bank of Uganda and undergo the same rigorous process, this will guarantee customer deposits safety.
She also said they are seeking amendments to the effect that microfinance institutions can engage in agency banking to take services closer to the people.
Ms Mbabazi said currently, agency banking only works for commercial banks. She also said they want an amendment to include bank assurance so that MDIs can offer bank assurance and increase insurance uptake across the country.
Mr Shem Kakembo, the managing director of EFC Uganda Limited, a microfinance institution, said their request comes at a time some microfinance institutions are taking voluntary customer deposits and thus they seek to regulate what they have achieved.
He said all the microfinance institutions are providing services which regular banks are offering and wondered why they cannot be recognised as banks.
“We are already mobilising resources and channeling them to customers. We have all departments which regular banks have except the forex department, so we are already compliant. Our staff are all competent enough and many even join the main banks and perform exceptionally well. So we are already there,” he said.
He said regarding the paid-up capital requirement, the majority of the microfinance institutions are already sufficiently capitalised to transit into microfinance banks and, therefore, that should not be a big concern.
Mr Paul Omara, the Otuke MP and a retired banker, however, put the team from the microfinance institutions to task to explain how they will handle the added pressure of operating as a bank. He said there are rigorous demands and high capital demand, which they may not be able to meet.
“In Uganda now, everybody wants to be what they are not. When you call yourself a bank, there is a lot of burden that comes with that and number one is operations and credit risk management. Compliance with the international standards and structurally within your organisations, you must have departments that will ensure the depositors’ funds are secure. What is the robustness of your credit department and your operations in terms of compliance with international practices?” he questioned.
He tasked the team to produce audited accounts of the institutions for the last two years before a decision is taken.
Ms Shafi Nambobi, the executive director of UGAFODE Microfinance Limited, said they have audited accounts done by highly qualified audit firms in the country. He said the institutions will avail all what is demanded from them.
The committee chairperson, Dr Keefa Kiwanuka, said they will scrutinse all the documents and interface with other stakeholders before a decision is taken.