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Capital for microfinance institutions set at shs5 billion

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Microfinance Deposit Taking Institutions (MDIs) will be required to have a minimum capital of shs5 billion to operate in Uganda.

The is contained in a statutory instrument on the revision of the minimum capital requirements presented to the House following a harmonization process by the Committee on Finance, Planning and Economic Development.

The Chairperson of the committee, Hon. Amos Kankunda who presented the report on Thursday, 17 August 2023, said there is a need for a legal regime that enables the majority of microfinance institutions to mobilize deposits to enhance financial inclusion.
“To ensure equity among MDIs and aspiring tier-4 institutions, the minimum paid-up cash capital requirements should be based on the size of the balance sheet of the institution,” said Kankunda.

The majority of such institutions operate under tier-4 like SACCOs and are not legally allowed to take deposits.

The current tier 3 (MDI) institutions in Uganda include Pride Microfinance Limited, FINCA, UGAFODE, and EFC Limited.

Kankunda added that the Bank of Uganda should annually review the proposed instrument within one year to determine the right percentage of the minimum capital requirement.

Tier-4 microfinance institutions under the control of the central bank as per section 110 of the Tier 4 Microfinance Institutions and Money Lenders Act, 2016, will be exempted from the statutory instrument.

The Shadow Minister for Finance, Hon. Muhammad Muwanga Kivumbi, emphasized the need to deepen the reach of deposit-taking institutions to enable the mobilization of money in communities.
“The un-mobilized money deprives us of funds that we can lend to businesses to grow our economy. After the year’s review, we will have a picture of whether it is prudent to even revise the minimum capital requirement lower,” Muwanga Kivumbi said.

He added that government should encourage indigenous investors to enter the space of money lending in a bid to secure the economy.

The State Minister for Finance, Hon. Henry Musasizi agreed with the committee’s position and commended it for setting a middle ground.
“We would have preferred the Shs10 billion but since we cannot get it, the Shs5 billion is good enough,” he said.

According to the Finance Committee, paid-up capital enables banks to finance strategic development projects and sectors that are largely financed with external borrowing and domestic syndication.

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