MICROCAPITAL STORY: Violence Erupts in Kampala as The Bank of Uganda Warns Customers May Lose Their Savings in Troubled Microfinance Institutions

The central bank in Uganda, the Bank of Uganda (BOU), has warned that customers in the country’s Savings and Credit Cooperatives (SACCOs) may lose their savings, according to reports in The Monitor, a daily newspaper in Kampala. The paper says the SACCOs, which are types of microfinance institution, are unsupervised and unregulated by the BOU, which “has now washed itself clean of any responsibility for the actions of such institutions” and will not be able to intervene or provide compensation for those clients that suffer.

As a result, 800 people were reported to mob the offices of Front Page MicroFinance, one of the original SACCOs under investigation, as MicroCapital reported in September. The customers besieged their offices in the hope of recovering their deposit money, and became violent, destroying the car of company’s manager.

This is the latest twist in an on-going story highlighting the dysfunctional SACCO system, which has been reported by MicroCapital. So far a number of the firms have been investigated by the police and shut down, with public worry about the system leading to satirical skits in the national theater.

Uganda’s SACCOs are a rapidly expanding network of credit unions that have developed to provide finance to low-income households, in which members can make deposits and receive loans. There are now approximately 2,000, 40% more than in 2000. The BOU has long been unable to regulate SACCOs, as it only has jurisdiction over full-fledged microfinance institutions (MFIs), which have customers rather than members. Currently there are only four MFIs under the bank’s supervision.

SACCOs on the other hand have only to be registered with the Registrar of Savings and Credit Cooperative Societies, which has limited staff capacity and expertise, despite the fact that they can take deposits and make loans to their members.

Last week the Association of Microfinance Institutions of Uganda (AMFIU), a trade association, tried to bolster the poor SACCO regulatory and supervisory situation by offering to audit the firms. The association launched a transparency programme and consumer code of practice, as well as offering to train more managers.

The Monitor claimed that it was not good enough for the BOU just to warn the public against unauthorised MFIs. The paper claims that very few people in the country know that only particular MFIs are monitored by the BOU, and that the Bank ought to do more to get involved in SACCO regulation and shut down those that it thinks are behaving illegally.

The World Council of Credit Unions (WOCCU), a worldwide development agency supporting credit unions, is working with the Ugandan government to prepare all Ugandan SACCOs for government supervision, as well as to develop the credit union legislation and regulation that are currently lacking.

Amy Rennison, MicroCapital writer

Additional Sources:

MicroCapital
https://www.microcapital.org/?p=1531

AllAfrica.com:
http://allafrica.com/stories/200711281197.html
http://allafrica.com/stories/200712032152.html

Microfinance Gateway:
http://www.microfinancegateway.org/resource_centers/savings/cgapsavings1/_assessments/_uganda

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