As the Vice President of the Microfinance Alliance (http://www.microfinancealliance.org), a student group at the University of Minnesota promoting awareness of microfinance, part of what I have come here to do is investigate opportunities for students to get involved in microfinance in Uganda. Prior to coming to Uganda, I took a graduate survey course in microfinance taught by Helzi Noponen, a consultant to MFIs (Microfinance Institutions) in India and adjunct faculty member at the University. Part of my classwork was to research MFIs in Uganda. Briefly, the financial system in Uganda is separated into 4 tiers of institutions. The first is the Central Bank of Uganda, followed by your run-of-the-mill national and international banks. Then there are two classes of microfinance institutions, which have been operating in Uganda for about 10 years.
The largest, most organized, and most carefully regulated microfinance institutions are regulated by the Bank of Uganda as MDIs (Micro Deposit-taking Institutions) and are classified as Tier 3 institutions. There are only 4 of them in operation, and in general, they all have a central office in Kampala with many branches throughout the country. I’ll give more details about this type in my next post.
The second type of MFIs in Uganda are not regulated by the central bank. This type includes most NGO MFIs but it is dominated by for-profit, locally managed institutions called SACCOs (Savings And Credit Cooperative Organizations). I was told when I visited a local USAID economic development officer that these organizations are self-regulated through the Association of Microfinance Institutions in Uganda (AMFIU). There has recently been pressure from the government for increased regulation (a few have collapsed and lost the savings of their members). Generally speaking the SACCOs, which are easy to start up, have a greater presence in rural communities. Towns as big as Mityana (40,000?) have an MDI or two present, but smaller towns only have SACCOs operating. SACCOs are similar to traditional credit unions, only with a specific purpose of providing products affordable to poor clients in an attempt to alleviate poverty locally.
Two weeks ago Maranatha hired a new accountant, John Kasumba. John has a business degree and I have been working with him day and night over the last two weeks to redesign Maranatha’s accounting system. Thanks to the free product GnuCash, Maranatha will now be utilizing computerized accounting and will no longer have to manually create financial statements. As it turns out, John helped found a SACCO two and a half years ago in his hometown of Kassanda, about 30 km northwest of Mityana. It is called Tropical Micro-Enterprise Cooperative Savings and Credit Society and he sits on its board of directors. I was delighted when he invited me to come pay them a visit on Saturday. So, I got my first introduction to an operating MFI in Uganda. I met with the SACCO’s manager, its treasurer, and John, who currently sits as its secretary.
The progress of Tropical is noteworthy. Since its inception, it has grown to 700 members who have purchased at least one share of stock and made a commitment to save at least 10,000 UGX (a little more than $6) per month. These members have a combined savings of over 175 million UGX (the equivalent of more than $100,000). That may only be $150 per member, but it is much more than the required minimum savings per member, which shows Tropical is effectively establishing a culture of financially responsible citizens who understand the value of savings. According to their financial statements (which were audited, but I don’t know by what standards), they also received an impressive margin on their operations.
Tropical recently started a program where they purchase motorcycles at wholesale in Kampala (imported from India and China) and offer them for sale through 8-month loan financing. So far they have sold about 20 motorcycles for between 1.65 and 2.5 million shillings each (or between $1000 and $1500; at least 20% must be paid up front), and are hoping to grow the program. Their primary buyers are farmers who use them to transport their goods to larger markets. Tropical makes an almost-negligible profit on the sale of the motorcycle, but makes much more on the interest from the financing.
I am proud to say that I became a member by paying the 10,000 UGX administrative fee and purchasing one share for 10,000 more. But, the treasurer told me they were having a difficult time trying to get their members to purchase more shares in the SACCO. It became clear while I was there that the board needs much more understanding about the purpose and value of equity ownership. Though Uganda has established its own stock exchange, the majority of the population has no understanding of equity, even those who have established institutions based on equity ownership! As you could imagine, holding shares is very uncommon in Uganda, especially in rural areas. I will be having further conversations with John about this in the future.