Saccos to face tighter regulation in new law.Double click and read more....

Kampala.
Savings and credit organisations will be regulated under the Micro Deposit Taking Institutions (MDI) Act, 2003, once Cabinet approves and Parliament endorses amendments to the law, according to Bank of Uganda.

The move is meant to safeguard the financial deposits of an estimated 620,000 customers.
“The prudential regulation of these Saccos is still wanting. So there are no safeguards for members’ deposits,” Mr Benedict K Ssekabira, the Bank of Uganda’s director commercial banking, said during the National Microfinance Conference in Kampala yesterday.

“We have proposed changes to the MDI Act, which is now before the First Parliamentary Counsel. We want the large Saccos to be licenced under the MDI Act. They will be called financial cooperatives,” Mr Ssekabira added.

However, Mr Ezra Suruma, an economist, said he would not like to see some Saccos that he witnessed starting closed down or sold off in the process of regulating.

“I am not sure that the Saccos that are big should come into the control of the Bank of Uganda. The MDI law says you can’t own more than 30 per cent of an entity. So, if such an institution will come under the MDI law, Mr Ssekabira will say that we have to sell off 70 per cent of our shares. If there are no Ugandans who will afford [to buy what we will be forced to sell] we will externalise, and that wouldn’t be a good idea,” Mr Suruma said.

Mr Fred Muhumuza, a senior partner at KPMG audit firm, said although the regulation and supervision was supposed to maintain integrity and soundness of financial institutions to increase the public’s confidence in the quality of services, there could be trade-offs.

“Regulations come with a cost, and, therefore restrictions on the number of providers and outlets. Many people are not able to meet the cost of regulation and so they do not become participants,” Mr Muhumuza said.

He said to balance the tradeoffs in order not to compromise access and quality, “we need to be clear on what language goes into the law and what language goes into the regulations. The laws are harder to deal with; they are harder to adjust”.

“With regulations, you can respond any time; at least at shorter intervals you have more flexibility to responding even to emerging challenges,” Mr Muhumuza said.

Other proposals
Mr Benedict Ssekabira said another proposed change to the MDI Act would be to approve small business proprietors to be contracted by banks to undertake transactions on behalf of the banks.