Uganda's Experience in Regulating Microfinance Deposit-taking Institutions
This paper discusses benefits of regulating deposit-taking microfinance institutions (MDIs) in Uganda.
The MDI Act, enacted in 2003 in Uganda, avoided applying burdensome requirements on institutions that were going under prudential regulation for the first time. It helped:
- Redefine the nature and degree of government’s involvement in the industry;
- Shift government focus towards supporting sustainable, market-based microfinance;
- Improve central bank supervisors’ appreciation of the peculiarities of microfinance supervision;
- Ensure that bank and MDI supervisors benefit from each other’s skills;
- Increase loan provision;
- Ensure that clients benefit from group methodologies that MDIs use to help improve clients’ entrepreneurial and managerial skills;
- Improve MDI credibility.
The paper recommends addressing certain limitations to further benefit from MDIs regulation. The limitations include loopholes in the regulatory framework that enabled many targeted institutions to operate outside the MDI Act, high cost of transformation, fears of loss of control and mission, and lack of credit assessment skills.