Govt to increase capital requirements for microfinances 

Government is set to increase the minimum paid-up cash capital requirements of microfinance deposit-taking institutions to Shs 10 billion, from Shs 500 million.

The microfinance deposit-taking institutions in Uganda include EFC Uganda Limited (MDI), Finca Uganda, Pride Microfinance Limited, UGAFODE Microfinance Limited (MDI) and others.

On July 6, 2023, Matia Kasaija, the minister of Finance, Planning and Economic Development, tabled the Revision of Minimum Capital Requirements Instrument 2022.

The instrument was referred to the committee on Finance, Planning and Economic Development for consideration. According to the ministry, the instrument is aimed at improving the soundness of the financial sector and enhancing the efficacy of monetary policy transmission; ensuring that minimum capital requirements are commensurate with economic growth and inflation developments are aligned with financial system developments, and sufficient to address emerging risks.

It also seeks to ensure that microfinance deposit-taking institutions hold reasonable capital to protect their depositors and creditors against the risk of losses from the banking business; and ensure that Uganda’s minimum capital requirements for microfinance deposit-taking institutions is in line with international standards.

While presenting the committee report, Amos Kankunda said the ministry of Finance, Planning and Economic Development proposed that the increase in minimum paid-up cash capital requirements for micro-finance deposit-taking institutions shall take effect starting June 2024.

“The committee observed that the current paid-up capital is insufficient to efficiently operate new microfinance deposit-taking institutions given the earlier mentioned macro-economic evolutions in the micro-finance market,” he said during the plenary.

He added that the enhanced paid-up capital will enable banks to finance strategic development projects and sectors, which are currently largely financed with external borrowing and domestic syndications due to the single obligor limits restricted by low minimum capital requirements.

“There is need to enhance Uganda’s banking industry competitiveness in the East African Community common financial services market. In real terms, Uganda has the lowest paid-up capital among regional peers, undermining Uganda banks’ competitiveness while exposing the sector to the risk of regulatory arbitrage. They, therefore, recommended for approval of the instrument,” he stated.

Following the presentation of the report, speaker of parliament Anita Among, however, referred the instrument back to the committee for wider consultation with the microfinance deposit-taking institutions.