THE MICROFINANCE SECTOR IN UGANDA
Uganda has one of the most prominent microfinance sectors in Africa. It sometimes enjoys the same visibility in Africa, as does Bolivia in South America, or Bangladesh in Asia. Uganda has received, perhaps, more donor aid for microfinance per capita than any other African country (estimated to be about USD 40 Million between 1998 and 2003 alone). The result of this largess is a sector in its complexity, with many strengths but some glaring weaknesses.
FSDU and, increasingly, its partners, see the sector as divided into three broad categories of institution.
At the top are the formal institutions, the commercial banks, credit institutions and Microfinance Deposit-taking Institutions (MDIs). These are regulated and supervised by the Bank of Uganda, and are widely considered to be safe places to save, and generally transparent. While they are largely confined to urban and peri-urban areas, some of them, notably Centenary Rural Development Bank, Commercial Microfinance Ltd, and the four MDIs, have significant outreach into more rural areas.
Below them are the semi-formal institutions, Savings and Credit Cooperatives and Microfinance institutions (SACCOs and MFIs). These institutions in many cases advance a clear social mission. Many, though, are plagued by inefficiencies and high costs, and the semi-formal sector is both the smallest, and costliest to clients, sector. The government has recently launched a campaign called Prosperity for All (usually referred to by the Luganda term bona bagaggawale, intended, among other goals, to place a SACCO in every sub-county.
Still lower on the ladder are the extremely large number of informal, village based institutions. This category consists of Rotating Savings and Credit Associations (ROSCAs); Accumulating Savings and Credit Associations (ASCAs); and, a dizzying variety of burial societies, investment clubs, gifting circles, and so on. The informal structures have huge advantages of proximity and low cost, while some lack security and none can meet the needs of those who want to save or borrow significant amounts of money.
These institutions combined manage to provide some access to savings to about half of all adult Ugandans.
In addition, Uganda is putting in place some of the other pieces of infrastructure necessary to a strong and stable financial sector. The Bank of Uganda is in the long process of establishing and licensing a Credit Reference Bureau, while a group of projects and donors have agreed to support a local rating fund, to make professional, recognized ratings available to smaller MFIs and SACCOs.
committees and working groups are addressing issues around the Coordination
of Capacity Building assistance, the local rating fund, consumer education,
and market research.