The reputation of microfinance institutions (MFIs) in Uganda took another turn for the worse following the police investigation into four savings and co-operative credit organisations (SACCOs) suspected of fraud, as reported in MicroCapital on 21 September 2007. The investigation had already prompted a downturn in public confidence, with the Grand Comedy theater in the country satirising the “fraudulent” microfinance firms on stage, as we reported on 17 October 2007.
The four organisations that were investigated for allegedly cheating their clients and refusing to make complete client deposit withdrawals were Savings and Credit Cooperative Society Support Uganda Finance Limited, Front Page Micro Finance, Faster Micro Finance, and Stade Rugando Finance, all based in Kampala.
Since then, NewVision, a daily Ugandan newspaper, reported that a company called The Support Uganda Savings and Cooperative Society was suspended for breaking the law and The Daily Monitor, a rival newspaper in Kampala, reported that a company called Support Finance Uganda Savings and Credit Co-operative Society had some of its branches closed down.
It is unclear whether these two firms are one and the same, as may be the case with such similar names, or indeed if either is one of the original four firms that was under investigation by the police. None of the sources refer to each other and there are no other reliable sources to confirm this.
The suspension of The Support Uganda Savings and Cooperative Society was enforced by the Registrar of Savings and Credit Cooperative Societies, the body that grants Ugandan SACCOs licence to operate. The Registrar explained that the SACCO broke the rules by opening branches when it was still on a 24-month probation period, before it had gained clearance to do so. The registrar reportedly added that the firm’s top manager had also been replaced with a caretaker manager and members should not panic because the situation was under control. The Registrar’s office is mandated with ensuring that SACCO members are not conned.
However, in The Daily Monitor report the following day, The Support Finance Uganda Savings and Credit Co-operative Society had all its branches closed by police in the Masaka District over allegations of fraud. In addition two branch managers and an auditor were arrested.
If these allegations are upheld, it public confidence will continue to plummet in a system that will be considered corrupt and untrustworthy, a disaster in a country where access to financial services is very low, with only 12.5 per cent of economically active adult Ugandans having direct access to a deposit account, according to CGAP.
James Abola, a business consultant writing for the The Daily Monitor suggests that the problem could lie with the SACCOs specifically, rather than with MFIs overall. In 2003 the government passed the Microfinance Deposit Taking Institutions Act, which only allows those MFIs that are licensed by the Bank of Uganda to take deposits from the public and then on-lend to clients. Only four organisations, according to Mr. Abola, are currently operating under this Act. SACCOs, however can get round this rule, as they are allowed to take deposits from their members and then lend this to other members of the SACCO. They only have to be registered with the Registrar of Savings and Credit Cooperative Societies and are not regulated by the Bank of Uganda.
Accordingly, the Government is tightening its grip on bogus SACCOs trying to ensure that all credit organisations are licensed by the Registrar of Savings and Credit Cooperative Societies. However, as reported on 21 September 2007, there is still no proper legal framework and supervisory system for SACCOs that can help protect member savings and generate confidence. 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:
AllAfrica.com:
http://allafrica.com/stories/200710220227.html
http://allafrica.com/stories/200710220123.html
http://allafrica.com/stories/200709300042.html
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