MPs block govt Shs10b capital condition for MDIs in Uganda
Parliament of Uganda in session. Photo | File
What you need to know:
- However, in his minority report, the Shadow Minister for Finance Mr Muwanga Kivumbi told MPs that this would obstruct the growth of such institutions in the country.
Parliament has blocked the processing and enactment of an instrument that would largely define the minimum capital required for Micro-Financial Deposit-taking Institutions (MDI) to operate in Uganda.
Under the new enactment, the government through the Ministry of Finance had sought to elevate the minimum paid-up cash capital requirements of MDIs from the current Shs500 million (25,000 currency points) to a whooping Shs10 Billion (500,000 currency points), something lawmakers strongly objected.
As she objected to the Revision of Minimum Capital Requirement Instrument, 2022 during plenary on Thursday evening, Speaker of Parliament Ms Anita Among established that the Parliament's Committee on Finance chaired by Mr Amos Kankunda had not consulted some of the major players within the MDIs as required within the processes of making such legislation.
“When you look at the methodology, the Ministry of Finance and Bank of Uganda were consulted, FINCA wasn’t consulted, and the stakeholders weren’t consulted. I am going to differ this and the Committee goes back to consult the stakeholders and next time before you write the report, make sure you consult the stakeholders, you hear their views,” Ms Among noted.
In his submission, Mr Kankunda told Parliament that it was necessary to revise the minimum since there have been several developments within the sector.
“The Committee observed that the current paid-up capital is insufficient to efficiently operate a new Microfinance Deposit-taking institution given the earlier mentioned macro-economic evolutions in the microfinance market,” Mr Kankunda said.
He added: “The Committee further observed that the currently operating MDIs already have the minimum paid-up capital requirements. The four MDIs currently in operation include; FINCA Uganda and Pride Micro-Finance Uganda.”
He also added that with this kind of legislation, such institutions would be in a position to finance development projects.
“The Committee observed that there is a need to enhance Uganda's banking industry competitiveness in the East African Community common financial services market. In real terms, Uganda has the lowest paid-up capital among regional peers, undermining Uganda banks' competitiveness while exposing the sector to the risk of regulatory arbitrage,” Mr Kankunda told Parliament.
However, in his minority report, the Shadow Minister for Finance Mr Muwanga Kivumbi told MPs that this would obstruct the growth of such institutions in the country.
“In our view, this increment is high and prohibitive in a way that it will discourage new entrants in the sector. Uganda has a large unbanked and underbanked population, especially in rural areas. The idea of allowing MDIs in Uganda to stabilize was to help bridge this gap by offering financial services to individuals and small businesses who might not have access to traditional banks. By providing deposit-taking services, MDIs enable people to save money securely and access credit, which can lead to increased financial inclusion and economic development,” Mr Kivumbi stated.
