There are 4 Tiers or types of financial institution defined under the Microfinance Deposit Taking Institutions Act of 2003.

  • Tier 1: Commercial Banks licensed under the Financial Institutions Statute, 1993
  • Tier 2: Credit Institutions licensed under the Financial Institutions Statute, 1993
  • Tier 3: Microfinance Deposit-Taking Institutions (MDIs)  licensed under the Microfinance                            Deposit-Taking Institutions, Act 2003
  • Tier 4: Microfinance Institutions that are involved in MF business but do not fall under the Tiers above mentioned

The enactment of the MDI Act 2003 still leaves a significant need for regulation of Tier 4 institutions. Among Tiers 4 institutions, Savings and Credit Cooperatives (SACCOs) alone can collect and intermediate deposits from their own members (though not from the general public). SACCOs are registered by the Commissioner of Cooperatives who works under the Ministry of Tourism, Trade and Industry (MTTI). It is widely recognized that the MTTI does not have the capacity to monitor and supervise the approximately 1,500 registered SACCOs.  At the same time, the SACCOs have been  supported by a variety of apex and support agencies  including: Uganda Cooperative Alliance (UCA), the Uganda Credit and Savings Cooperative Union (UCSCU), the network of District Private Sector Promotion Centers, USAID’s Rural SPEED project, the European Union’s SUFFICE project, the Microfinance Support Centre Ltd, and others. These institutions have given support, but with limited ability to enforce the advice given to the assisted institutions. Also, the large number of support institutions occasionally led to donor arbitrage by the Institutions.

FSDU has encouraged it partners to think outside the box and in one such incident, funded PostBank to launch a mobile banking service in Eastern Uganda. This mobile service, launched in September 2007 in Bududa (Mbale), is aimed at piloting this channel as an alternative to ‘brick and mortar’ branches. The PostBank mobile banking service will reach out to seven un-banked districts in Eastern Uganda.

FSDU has been one of the major actors working to improve transparency, professionalism and support among the Tiers 4, primarily through consumer education, participation in policy dialogue, data gathering and dissemination, and support to small pilot projects. One such pilot was the prospect for an integrated delivery of financial services by Agaru SACCO in Pader District (Northern Uganda). FSDU supported Agaru SACCO have a rating by Planet Rating, two external audits, and formulation of a strategic plan. Agaru SACCO is prospected by PostBank as a prime linkage banking partner in Northern Uganda.

FSDU’s collaboration with others has resulted in the compilation of background information on Tier 4 Institutions:

Regulating & Strengthening Tier 4 Institutions in Uganda
The Effects of Wholesale Lending to SACCOs in Uganda by Alex Fiorillo 

Accounting and Audit Working Group
In February 2007,
the Accounting & Audit working group joined the Capacity Building Steering Committee which is made up of microfinance stakeholders providing capacity building and wholesale loans to Tier 4 Institutions. 
The objectives of the Working group were to overcome the following shortcomings in the financial systems of Tier 4 institutions and enhance transparency:

  • The low quality of financial management and financial statements produced by the institutions’ accountants / bookkeepers
  • The lack of appropriate skills to audit these institutions by small and medium sized external audit firms and the District Commercial Officers (SACCOs) 
  •  The high cost of Audit services.

 The Group proposed the following actions to resolve the challenges above;

  • Enhance the capacity of Auditors to audit Tier 4 institutions through training using the CGAP Financial reporting and audit guidelines
  • Standardize the Tier 4 Accounting systems to facilitate training and audit
  • Enhance the skills of the institutions’ accountants / bookkeepers through training.
  • Negotiate with the External Auditors to lower their audit fees, perhaps in exchange for a guaranteed amount of business by clustering institutions and by improving the quality of the institutions’ financial systems.
  • Provide a reasonable amount of subsidy to kick-start the audit market, once the above steps have been taken satisfactorily

 FSDU took the lead in July 2005 by piloting the training of the staff of the 15 members of the Association of Microfinance Institutions in Ankore (AMFIA) using local service providers in; Fundamentals of Accounting 1, Financial Analysis and their external Auditors in Auditing MFIs using CGAP guidelines. The pilot was to test the materials for their appropriateness and determine whether the concept would work. Thereafter the training was rolled out during 2006 to other parts of Uganda to accounting staff from 60 institutions and 26 audit staff.

Training manuals:

Fundamentals Of Accounting Manual #1
Fundamentals Of Accounting Manual #2
MFI Audit Course Manual 
In August 2006, ACLAIM Africa Ltd. were contracted to carry out a comprehensive study of the effects of the above training on skills acquisition and adoption of better practices resulting in improved financial statements. The consultants were also to determine whether the auditors that were trained were in fact using their new skills.

ACLAIM presented the results in a report:
Report on FSDU Training Evaluation

Subsequently, FSDU commissioned a Consultant to carry out an Assessment of Capacity Gaps in the work & functions of Accountants and Auditors of Ugandan SACCO.

An assessment of Capacity Gaps in the work & functions of Accountants and Auditors of Ugandan SACCO

FSDU also funded the development of a Model Accounting Policy and Procedures Manual for SACCOs to enable them to have the basis for sound financial management systems

A Model Accounting Policy & Procedures Manual for SACCOs

Other Related Documents
FSA Survey - Two Years Later
Money Lenders Study - Lessons from Uganda by Ernest Kaffu and Paul Rippey