Programme description

Title: Financial System Development
Commissioned by: German Federal Ministry for Economic Cooperation and Development (BMZ); Swedish International Development Cooperation Agency (Sida), until June 2009
Country: Uganda
Lead executing agency: Bank of Uganda
Overall term: 1998 to 2014

Context

Uganda's financial sector has shown marked growth in recent years, and great progress has been made in its regulation. In January 2012, 30 regulated financial institutions were providing the country with financial services through 537 licensed branch offices (as compared to around 270 branches at the end of 2006). Despite these successes, over seventy per cent of Ugandans (down from eighty-two per cent in 2007) have no access to even elementary formal financial services such as savings accounts, loans or payment transfers. Not only does this brake economic development; it is also an obstacle to efforts to reduce the poverty suffered by the majority of the people, especially women in rural areas and small farmers.

Objective

Uganda’s poorer population has access to sustainable financial services. Financial inclusion is contributing to the achievement of Uganda’s National Development Plan (NDP).

Approach

The programme supports the development of Uganda's financial system. It analyses bottlenecks in the financial sector to identify poverty-oriented measures. By supporting the Bank of Uganda (BoU) with expert advice, the programme helps to improve conditions for wider access to secure and stable financial services. The programme also encourages dialogue between policy-makers and the private sector in the field of agricultural financing. It supports financial services providers and apex institutions in developing financial products for the agricultural sector as well as in establishing uniform quality and consumer protection standards. Microfinance institutions, especially in northern Uganda, are provided with expert advice and training. The programme's cooperation with the BoU on financial literacy and consumer protection promotes informed demand for good financial services

Strategic positioning in the BoU, along with the deployment of development workers and a consulting syndicate of Swisscontact and Como in northern Uganda contracted by GIZ bring the programme closer to our partners and ensure a wide impact.

Results achieved so far

Improved conditions in the financial sector
The programme supported the development and introduction of the MDI Act (Microfinance Deposit-Taking Institutions Act, 2003). Microfinance institutions that operate in conformity with this law and consent to monitoring by the Bank of Uganda may now accept savings deposits from private customers. By the end of 2010, more than 800,000 customers, mostly from poorer sections of society, had opened savings accounts; this is double the number in 2007. In cooperation with KfW Entwicklungsbank, the programme assists the Bank of Uganda in setting up a deposit guarantee fund for MDIs to protect small savers' deposits.

Also with KfW Entwicklungsbank, the programme is promoting the establishment of the Credit Reference Bureau (CRB), one of the first of its kind in East Africa (2008). Like the German SCHUFA, the CRB is a body designed to protect its member financial institutions from loan defaults, thus improving efficiency, interest rates and access to financial services in the medium and long term. All branches of the financial institutions regulated by the BoU are members. By January 2012, more than 680,000 customer data files had been stored. In the worldwide ranking for ‘Getting Credit’ published in the World Bank / IFC Doing Business Report for 2010-2011, Uganda jumped from 109th place to 46th place.

Development of microfinance institutions' competencies and performance
The programme supports the Association of Microfinance Institutions of Uganda (AMFIU) with such measures as introducing a standardised national performance monitoring instrument for microfinance institutions (performance management tool or PMT). Since June 2011, 65 savings and credit cooperatives (SACCOs) have been using the benchmarking system, as a result of which they can better monitor and adjust their services. Nine model SACCOs with a total of 19 branches have benefited from support measures designed to boost their efficiency and institutional transparency. The centrepiece of this action was the introduction of a management information system (MIS) using solar-powered computers. Cooperation with the SACCOs is enabling a total of 50,000 members to enjoy lower interest rates. For smaller, non-computerised SACCOs, a central data processing concept combined with training measures has been successfully tested.

Courses in microfinance have been established at the Uganda Martyrs University and the Mountains of the Moon University. On average, 100-110 students graduate each year and find higher-level employment in the microfinance sector.

Rural and agricultural finance
Thanks to improved loan data collection by regulated financial institutions, developments in agricultural financing can be monitored and analysed in detail. 
Together with the Plan for Modernisation of Agriculture (PMA) and the Bank of Uganda, the programme has produced four issues of Uganda's Agricultural Finance Yearbook. The knowledge discussed in it finds its way into the sector dialogue and has met with increasing interest in both politics and private industry.

The programme has supported financial institutions in expanding their operations into rural areas and developing specific financial products for agricultural value chains. One example: together with a local partner, the Centenary Bank, a successful credit facility was developed to fund purchases of draught animals, which is now benefiting impoverished farmers, especially in northern Uganda. With the cooperation of Agaru SACCO, a loan product to help small farmers invest in artificial irrigation systems has been developed and successfully introduced.