Note: The data are provided for informational purposes only and in some cases, the information may be incomplete, not fully accurate or out of date. For more information on how data are compiled, see "A Note About Sources." The date of the last update for each country is marked in the section "Country Indicators." We welcome updates and comments. Click here to write to us.
Microfinance Support Centre Ltd. (for non-regulated MFIs), Development Finance Department of Bank of Uganda (Commercial Banks), several commercial banks lending using donor guarantees
Definitions of microfinance or microcredit
Principal business: Accept deposits and employ such deposits by lending, including the provision of short-term loans to micro-enterprises & low-income households, usually characterized by the use of collateral substitutes
Short-term loans are defined as those with less than a two-year maturity, and small loans are constituted as less than 1% of core capital for individual borrowers and less than 5% of core capital for group borrowers (MDI Act, Sect. 2)
Ongoing microfinance policy development status
The Micro Finance Deposit-Taking Institutions (MDI) Act (2003) regulates NBFI’s that are not licensed as either banks or credit institutions under the Financial Institutions Act (2004). The regulatory requirements cover almost all aspects as other financial institutions, yet they are less comprehensive and many favourable adjustments for conducting microfinance business have been made.
The dividing line between these MDIs and unregulated MFIs is the question of whether they mobilize deposits from the public or not. Accepting savings from members of mutualist institutions and mandatory savings as collateral substitute (as long as the funds are not lent out again) are allowed for unregulated institutions.
Safety net availability: insurance, pension, etc.
Insurance companies, microinsurance, public pension fund
» The Case of Uganda in "How to Regulate and Supervise Microfinance: Key Issues in an International Perspective"
E. Katimbo-Mugwanya (2000). Alfred Hannig and Edward Katimbo-Mugwanya, eds.
FSD Series No. 1. Eschborn, Germany: GTZ
Mostly corporate lending, some consumer lending, financial investment, current accounts, savings accounts, ATM. Banks are increasingly trying to market savings accounts to lower-income households.
Non-bank Financial Institutions
Micro-finance Deposit Taking Institutions
3 (as of August 2005)
119,994 (most recent data available from each institution)
US $21,011,535 (most recent data available from each institution)
Low-income population
Licensed specifically for providing microfinance services.
Financial institutions, i.e. companies carrying on financial institutions business; excluded are co-operative societies registered under the Co-operative Societies Statute, 1991, unless they accept deposits from the public, and micro deposit-taking institutions, i.e. companies carrying on microfinance business. Banks accept demand and time deposits; lend; and provide payment services.
Financial institutions business, defined as a list of 16 different activities (of which presumably one would be enough to trigger the licensing requirement); these activities are, among others: deposit-taking, lending or extending credit, foreign exchange business, payment services, transmission services, securities trading, leasing, merchant banking, mortgage banking; eight classes of licenses are distinguished, namely for a commercial bank, post-office savings bank, merchant bank, mortgage bank, credit institution, acceptance house, discount house and finance house
Companies carrying on microfinance business including deposit-taking, lending, including short-term loans to small or micro- enterprises and low-income households, usually characterized by the use of collateral substitutes, such as group guarantees or compulsory savings. (MDI Act, Sect. 2)
Bank of Uganda (BoU). Credit-only MFIs are not regulated.
Acceptance of deposits; employing them to extend credit to small or microenterprises and low-income households, usually characterized by the use of collateral substitutes such as group guarantees or compulsory savings.
Company types include: Limited liability companies and unlimited companies (members are liable for the obligations of the company without limitations on the amount payable). Limited liability companies may be limited by shares (liability of shareholders limited to the amount unpaid on shares issued), and Companies limited by guarantee (utilized by non-profit organizations, liability limited to a contribution of specific assets). LLC’s may be public (shares are freely transferable) or private (transfer of shares is restricted.) Banks and other financial institutions must register as companies limited by shares.
Other forms of organization are: A building society incorporated under the Building Societies Act and any institution classified as a financial institution.
No person or group of related persons may hold more than 49% of shares; persons holding more than 5% of shares must be fit and proper (Financial Institutions Act (2004), Arts. 18&19)
Under the MDI Act a company is defined as “company limited by shares and having a share capital” (MDI Act, Art. 2)
No person or group of related persons may hold more than 30% of shares following the 5 yrs. transition period after commencement of Act; exemptions for wholly owned subsidiary of a bank or a reputable financial institution or, in exceptional cases, a reputable public company (approval of BoU needed, certification of criteria by external auditor appointed by BoU); fit and proper test for owners with more than 10% stake (MDI Act, Art. 21)
Acquisition or transfer of 10% or more of MDI shares subject to Bank of Uganda review
No restrictions on foreign ownership
Licensing application fee of 25 currency points (currently US $281 [500,000 UGS]); upon license being granted, annual fee of 50 currency points (currently US $562 [100,000 UGS]. (MDI Licensing Regulations Art. 15, 18)
MFIs currently carrying out microfinance business as defined in the Act have 24 months transition period after the commencement of the Act to get a license; the central bank has 6 months to consider the license application (MDI Act, Art. 91&7)
Licensing Requirements and Standards
Standards for ownership officers
Feasibility study/business plan
Audit of Proposed Founders, Owners, Officers
Operating Manuals
Prohibited sources of funds
Banks
Banks and Credit Institutions
All directors must be fit and proper as defined in third schedule (Financial Institutions (FI) Act (2004), Art. 11), further personal requirements are defined in Section 53; two executive directors are elected from among the board (FI Act, Arts. 55-56)
Feasibility Study, business plan, projected balance sheets and income statements required (FI Act, Art. 10)
Relevant materials pertinent to the viability of the institution can be submitted if the applicant desires. Bank of Uganda must be satisfied regarding financial condition of the applicant (FI Act, Art. 11)
Risk management and operating procedures required. (FI Act, Art. 10)
Non-bank Financial Institutions
Micro-finance Deposit Taking Institutions
Fit and proper test including information required to assess trustworthiness and professional qualifications as defined in Schedule 2 for Chief Executive Officer, Senior/Top management and directors and any person owning more than 10% of shares (Micro Finance Deposit-Taking Institutions (MDI) Act (2003), Art. 7, 21 (4), MDI Licensing Regulations Schedule 2); former internal auditors and directors of other MDIs that were put under BoU management are, among others, disqualified as directors (MDI Act, Art. 23)
Operators, board members must be “fit and proper,” trustworthy, experienced, qualified, have adequate resources
Detailed feasibility study, business plan, financial projections, risk management plan etc. required. (MDI Act, Art.7; MDI Licensing Regulations, Art. 6, 8)
Consideration is given to the applicant’s balance sheet as well as sworn declarations of the assets and liabilities of founder shareholders or audited statements of the founding company. (MDI Act, Art.7; MDI Licensing Regulations, Art. 6, 8)
Credit, human resources, operations, accounting, and audit manuals all required (MDI Licensing Regulations Art. 8(l))
None.
Capital and Reserves
Minimum capital
Minimum capital adequacy/gearing ratios
Forms of capital recognized
Risk-weighting of assets
Loan loss provisioning, write-off
Reserves, Liquidity requirements
Banks
Banks and Credit Institutions
200,000 currency points, currently about US $2.3 million (4 billion UGS) for a bank; 50,000 currency points, about US $563,000 (1 billion UGS) for a non-bank financial institution. Minimum capital can be varied by the Minister with approval of Parliament. (Financial Institutions (FI) Act (2004), Art. 26)
Core capital of 8% of risk-weighted assets plus risk-adjusted off balance sheet items; total capital of 12% of risk-weighted assets plus risk-adjusted off balance sheet items (FI Act, Art. 27)
Core capital refers to shareholders equity in the form of fully paid-up shares plus reserves. Supplementary capital refers to general provisions, revaluation reserves, and any other capital. (FI Act, Art. 3)
Follow risk weighting concepts as given in Basle Agreement
• General provision of 1%
• Substandard: 180-365 days, 20%
• Doubtful: 1-2 years, 50%
• Loss: more than 2 years, 100%
• Write-off within three months of being identified as loss
(Regulations on Asset Quality, Part 5)
Liquidity Ratio: Liquid assets max 30% of demand and time liabilities; liquid assets include cash, Ugandan T-Bills and securities, net deposits in Ugandan banks or the Bank of Uganda, demand deposits at foreign banks, promissory notes. (FI Act, Art. 28)
75% of minimum capital has to be held as a time deposit in a commercial bank to the order of Bank of Uganda (MDI Licensing Regulations, Art. 8)
Minimum capital can be varied by the Minister with approval of Parliament (MDI Act, Art. 15)
Definition of currency points (Schedule 1) can be changed by Minister with approval of Parliament (MDI Act, Art. 90)
Core capital adequacy min. 15% of risk-weighted assets and min. 25,000 currency points, total capital adequacy min. 20% of risk-weighted assets. (MDI Capital Adequacy Regulations Art. 6)
Core capital refers to shareholders’ equity in the form of issued and fully paid-up shares, including retained reserves.
Supplementary capital refers to general provisions, revaluation reserves, and any other capital. Total capital is core capital plus supplementary capital. Subordinated debt may be included under total capital with approval of BoU, but not to exceed 50% of core capital. (MDI Capital Adequacy Regulations, Art. 3)
According to Basle Capital Accord: Notes, coins & other cash assets, Uganda government securities, 0%; due from other banks in Uganda or outside Uganda: 20%; Loan portfolio net of provisions, investments, premises and other fixed assets, items in transit (own offices) and all other assets: 100% (MDI Capital Adequacy Regulations)
Provisioning - classification of arrears (days)
Normal credit risk: less than 8 days, 1%;
Watch: 8 to 30 days, 1%;
Substandard: 31 to 60 days, 25%;
Doubtful: 61 to 90 days, 50%;
Loss: 91 and more days, 100%;
For rescheduled loans the provisioning percentages are:
Watch – 5%
Substandard – 50%
Doubtful – 75%
Provisions on outstanding balance and interest that has been capitalized; non-accrual of interest on non-performing loans (Section 11 and 12, Regulations on Asset Quality)
Write-off policy:
Loans must be written off six months after they have been identified as a loss
(MDI Asset Quality Regulations, Art. 7-11)
Reserves: None
Liquidity Ratio: Liquid assets 15% of total deposit liabilities (MDI Liquidity Regulations Art. 6)
Risk Management Guidelines
Guidelines & restrictions on financial services
Guidelines & restrictions on operational rules
Guidelines & restrictions on interest rates
Concentration of risk
Connected/insider business
Banks
Banks and Credit Institutions
Permitted: All financial activities except the following:
Prohibited activities: Lending using financial institution's own shares or capital as security; engaging in trade, commerce, industry, insurance or agriculture, make capital investments in excess of 25% of core capital; investments in immovable property only up to 100% of core capital and only for the purpose of conducting the financial business; underwriting of shares and securities brokerage; restrictions on foreign exchange business as prescribed in rules published by Bank of Uganda, the same applies to net open positions in any foreign currency. (FI Act, Art. 30, 37-42)
New branch openings or changes in location require Bank of Uganda approval; branch closure requires Bank of Uganda notification. (FI Act, Art. 116)
None
Loan to a single borrower or related borrowers max. 25% of total capital (core capital plus supplemental capital), under certain circumstances up to 50%. Prohibition against large exposures which exceed 800% of total capital. (FI Act, Art. 31).
Use of non-preferential terms for loans to affiliates and associates, directors, persons with executive authority, substantial shareholders or to any of their related person prohibited; maximum limit for these loans (in the aggregate) is 20 percent of core capital; market value of securities has to be at least 120% of outstanding loan amount; max. loan size to employees is equivalent of two years' salary (except for mortgage lending, which has a cap of three years’ salary); max. loan size to non-executives is 2.5% of core capital; and other, strictly defined limits for insider lending (FI Act, Art. 34)
Non-bank Financial Institutions
Micro-finance Deposit Taking Institutions
Permitted: All financial activities except the following:
Prohibited activities: Prohibited without approval of BoU are the following activities: Cheque accounts; other businesses such as trade, commerce, industry, insurance or agriculture; making certain equity investments in other companies; underwriting and placing of securities; e-commerce; taking deposits and lending in foreign exchange; intermediating loan insurance funds (defined as collateral for group loans); derivatives dealing; purchasing non-performing insider loans; lending when liquid assets are insufficient (MDI Act, Art. 19)
None
Max. loan size for lending to any one person or to any group of persons under the influence of any one person is 1% or 5% of core capital for individual or group borrowers, respectively (MDI Act, Art. 18, 1a)
Unsecured lending to insiders (directors, staff members, firms in which these have an interest or an ownership stake of more than 50%) in excess of 1% of core capital except on terms which are non-preferential; max. size of staff loans one year's emoluments (MDI Act, Art. 18 (1))
Reporting and Supervision
Supervision Method
Supervision costs and fees
Disclosure and reporting requirements
Depositor protection mechanisms (e.g., deposit insurance or lender of last resort)
Banks
Banks and Credit Institutions
On-Site: Periodic on-site inspections or at its own discretion either by an officer of Bank of Uganda or another appointed person; more frequent visits as part of prompt, mandatory corrective actions (FI Act, Art. 79, 85)
Annual fee to be paid to BoU, penalty fee in case of late payment ((FI Act, Art. 13)
Annually: Audited financial statements (Art. 48)
All information and data of its operations in Uganda including periodic returns, balance sheet and profit and loss; also the same information of subsidiaries, affiliates, associates or holding companies; frequency to be determined by Bank of Uganda except reports on insider loans, which have to be submitted monthly (FI Act, Art. 80)
Return for net open position in foreign currencies daily, weekly or monthly (FI Act, Art. 42)
Financial statements must be displayed at offices and branches and published annually in a newspaper (FI Act, Art. 50)
The existing Deposit Protection Fund shall continue to exist, it is managed and controlled by Bank of Uganda, every financial institution must contribute no less than 0.2% of average weighted deposit liabilities with increased charges for those institutions found not to be acting in the best interests of depositors. (FI Act, Art. 108-111)
Non-bank Financial Institutions
Micro-finance Deposit Taking Institutions
On-Site: The frequency of inspections is not stipulated in the Act, but will be fixed in the guidelines for on-site inspections. It must be increased as one of the mandatory prompt corrective actions (MDI Act, Art. 59)
There are no provisions with regard to the costs of supervision, although there is an annual licensing fee.
Annually: Audited balance sheet and income statement
Weekly: Liquidity report
Monthly: Statement on assets and liabilities, capital adequacy, income and expense, schedule of provisions, insider loans (MDI Reporting Regulations, Art. 7). Audited statements must be exhibited at branch offices and published in the newspaper (MDI Act, Art. 52)
Establishment of a separate MDI Deposit Insurance Fund in Bank of Uganda by statutory instrument (MDI Act, Art. 80)
Tax Treatment
Taxes on Income
Taxes on Payroll
Treatment of costs, provisions, reserves
Other
Banks
Banks and Credit Institutions
Loan loss provisioning is not deductible.
General Applicability
General Applicability
Corporate taxes: 30% for resident companies
Income tax: ranges from 0% to 30% for residents
National Social Security Fund: 10%
15% Witholding tax on dividends, interest, royalties and other payments. 30% capital gains tax. Withholding tax on cross-border interest payments.
MFI-specific
MFI-specific
None
National Social Security Fund: 15%
Other Relevant Business Legislation
Debt Enforcement and Collection
Credit Rating and Reporting Requirements, Services
Credit Rating and Reporting Requirements: Content Requirements
Security interests: Forms accepted
Competition/Consumer protection rules: standard disclosure formats
General Applicability
General Applicability
No automatic stay on enforcing security. Secured creditors are not guaranteed to be paid first
A Credit Reference Bureau will be established. (FI Act, Art. 78)
Financial institutions must report details of non-performing loans and information on customers involved in “financial malpractices.” No other information to be sent without the customers’ consent. (FI Act, Art. 78)
Financial institutions may accept liens on crops, animals and other chattels as collateral security for loans and overdrafts. Use of land as loan security depends upon the type of land tenure.
None
MFI-specific
MFI-specific
A Credit Reference Bureau will be established.
MDIs must report all details of non-performing loans classified as doubtful or losss; information on customers involved in “financial malpractices.” No other information to be sent without the customer’s consent. (MDI Act, Art. 46)
