THE TIER 4 MICROFINANCE INSTITUTIONS AND MONEY LENDERS ACT (2016) KEY HIGHLIGHTS ON IMPLEMENTATION ICPAU COOPERATIVES' SEMINAR

Transcription

1 THE TIER 4 MICROFINANCE INSTITUTIONS AND MONEY LENDERS ACT (2016) KEY HIGHLIGHTS ON IMPLEMENTATION ICPAU COOPERATIVES' SEMINAR FRIDAY, 19 JANUARY 2018 HOTEL AFRICANA, KAMPALA

2 Outline Introduction Key Highlights of the Law Tier 4 SACCOs Regulations, 2017 Conclusion

3 Background In July 1999, BOU issued policy stance on the regulation of Microfinance business in Uganda Implication? Adoption of a tiered approach to the regulation & supervision of Financial Service Providers in Uganda Four (4) distinct Tiers emerged

4 Background Cont d... TIER 1 - Commercial Banks supervised by BOU under the Financial Institutions Act, 2004 TIER 2 - Credit Institutions supervised by BOU under the Financial Institutions Act, 2004 TIER 3 - Microfinance Deposit-Taking Institutions (MDIs) supervised by BOU under the MDIs Act, 2003

5 Background Cont d... TIER 4 - All other microfinance institutions not supervised by BOU i.e. Credit only Microfinance Companies & NGOs; SACCOs; VSLAs and Money Lenders Government committed to reforming the legal & regulatory framework for Uganda s Financial Services

6 Legal & Regulatory Framework Financial Services Department (FSD) created under Directorate of Economic Affairs in 2014 one-stop focal point for Ministry s policy & oversight role over Uganda s financial services Financial Institutions Act, 2004 amended in 2016 to provide for: Agent Banking Banc assurance Islamic Banking Reforms Access & Use of the CRB by other Financial Service Providers

7 Reforms Cont d... Consultations on the amendment of the MDIs Act, 2003 completed & Principles submitted to Cabinet for approval Legal framework for Insurance industry overhauled and Insurance Act, 2017 passed by Parliament in March 2017 Retirement Benefits Sector Liberalization Bill approved by Cabinet and submitted to Parliament Tier 4 Microfinance Institutions and Money Lenders Act, 2016 passed by Parliament in May, 2017

8 Why the need for Tier 4 Law? Cooperative Societies Act is an omnibus law for all cooperatives SACCOs for all intents & purposes similar to Financial Institutions yet subjected to fundamentally different rules and supervision from that of other financial institutions

9 Result of ineffective framework and supervision? Rampant fraud mismanagement Outright theft Why Tier 4 Law? Member savings lost Loss of confidence in the SACCO sector and microfinance industry in general

10 Stakeholder Consultations Law developed through extensive stakeholders consultations spanning over 10 years Consultations and drafting led by an interinstitutional team: MFPED MOJCA MTIC BOU ULRC

11 Consultations Cont d... Some of the stakeholders consulted: AMFIU Secretariat & members UCSCU Secretariat & members UCA Secretariat & members UCCK UBA URSB UMOLA SHG promoters

12 KEY HIGHLIGHTS OF THE TIER 4 LAW

13 Application of the Act This Act applies to all Financial Service Providers categorized as Tier 4 Microfinance Institutions (MFIs) & Money Lenders Tier 4 MFIs comprise: Savings and Credit Cooperatives (SACCOs) Non Deposit-Taking Microfinance Institutions (ND-MFIs) Self Help Groups (SHGs)

14 Arrangement of the Act Act organized into 10 Parts including: PART I - Preliminary PART II - UMRA PART III SACCOs PART IV ND-MFIs PART V -Money Lending business PART VI - SHGs PART VII Commodity Based Microfinance PART VIII Islamic Microfinance PART IX Receivership and Liquidation PART X - Miscellaneous

15 UMRA The Act establishes an autonomous supervisor to be known as the Uganda Microfinance Regulatory Authority (UMRA) UMRA has the following functions: regulating, LICENSING and supervising all Tier 4 MFIs & money lenders Promoting programmes and interventions necessary for the development of Tier 4 MFIs; Protecting the interests of the members and beneficiaries of Tier 4 MFIs, including the promotion of transparency and accountability by applying non prudential standards;

16 UMRA Cont d... UMRA s functions: promote the stability and integrity of the financial sector through ensuring the stability and security of Tier 4 MFIs; ensure the sustainability of the microfinance sector with a view to promoting long term capital development; establish and enforce standards of sound business and financial practices for Tier 4 MFIs;

17 UMRA Cont d... Some of UMRA s powers include: Powers to investigate or inquire into the operations of Tier 4 MFIs and money lending business Instruct on the proper management of Tier 4 MFIs and money lending business Exercise power that is necessary for the performance of its functions

18 UMRA Cont d... Power to takeover the management of a Tier 4 MFI for a period at its discretion if: It considers a Tier 4 MFI to be in unsound financial condition and not operating in accordance with sound administrative and accounting practices/procedures A Tier 4 MFI fails to comply with minimum capital requirements specified in the Regulations A Tier 4 MFI refuses to be inspected by the Authority A Tier 4 MFI s license has been cancelled or revoked A Tier 4 MFI is conducting its business in a manner contrary to this Act

19 SACCOs supervision SACCOs not allowed to conduct the business of financial services unless they are: Registered under the Coop Societies Act (1991), and Licensed under this Act SACCO to pay an Annual Fee to UMRA in respect to the licence fee is payable every year SACCOs to provide financial services to their members ONLY 19

20 Supervision Cont d... Some key powers of SACCOs include: Mobilise and receive savings from members Borrow externally an amount not exceeding the limit determined by the AGM + which in aggregate does not exceed the limit that shall be prescribed by UMRA Provide loans to members Receive payments or deposits from government on behalf of members Exercise such powers as may be necessary to enable it carry out the purposes for which it was established Financial Year of a SACCO to be the calendar year (ending 31 st December) 20

21 Coop Act Tier 4 Relation Coop Act not apply to SACCOs except as expressly provided for in the Tier 4 Act Coop Act to apply to SACCOs in respect to: Governance investment of funds Dividends reserve fund share transfer fund; and contribution to the education fund

22 Relation Cont d... MDIs Act, 2003 amended A registered SACCO with voluntary savings in excess of Ugx. 1.5 Bn and institutional capital above Ugx. 500 Mn shall apply in writing to the Central Bank for a licence

23 Transition period Hon. Minister of Finance designated Date of Commencement for the Tier 4 Act as 1 st July 2017 All Tier 4 MFIs & Money Lenders in operation as at 1 st July 2017 required to apply for a licence within 12 months from the date of commencement

24 TIER 4 (SACCOs) REGULATIONS 2018

25 SACCO Regulations Licensing Requirements: Dully completed application form Certified copy of the certificate of registration Copy of SACCO Bye Laws Financial Statements Business Plan Credit Policy & Lending procedures Details on the members of the Executive Committee and senior management Evidence of payment of Application Fees

26 Regulations Cont d... License Fees: SN FEE AMOUNT 1 APPLICATION 1,000,000 2 RENEWAL 1,000,000 3 BRANCH 500,000

27 Regulations Cont d... SACCOs to apply for RENEWAL LICENSE at least 90 days before expiry OF SACCOs required premises: to display at their Valid License Information on rights and obligations of members List of services and products offered SACCOs shall not relocate or close a place of business without notifying UMRA

28 Regulations Cont d... SACCO shall maintain at all times a core capital of not less than: 10% of total assets 8% of total deposits SACCO shall maintain at all times an institutional capital of not less than 8% of total assets SACCOs shall not borrow EXTERNALLY an amount exceeding 25% of total assets without approval from UMRA

29 Regulations Cont d... SACCOs to pay 0.05% of average annual savings & deposits as contribution to the SACCO Savings Protection Fund SACCOs to submit monthly Capital Adequacy Returns to UMRA SACCOs to submit monthly Liquidity Returns to UMRA

30 Regulations cont d... SACCOs to submit quarterly Investment Returns to UMRA SACCOs to annually submit Audited Financial Statements to UMRA A SACCO that fails to submit these Statutory Returns shall be fined Ugx. 400,000 as per section 32 of the Act

31 Way Forward MFPED in partnership with other MDAs is has: Set up UMRA and the Board Submitted Regulations to Implement the Act to First Parliamentary Counsel(FPC)-To be gazetted by 20/ 2/18 Started sensitising the public and candidates for supervision on the new legal and regulatory framework Formalising Delegated supervision arrangements

32 Thank you for listening