Kampala: The Committee on Finance, Planning and Economic Development is to engage all stakeholders in regard to the minimum capital requirement for Microfinance Deposit Taking Institutions (MDIs).
Speaker Anita Among directed the committee to engage the stakeholders following debate on a report from the committee on the Financial Institutions (Revision of Minimum Capital Requirements) Instrument 2022 that was presented on Thursday, 27 July 2023.
The Committee Chairperson, Hon. Amos Kankunda said that the key factor of the instrument is to increase the minimum paid up cash capital requirements for microfinance deposit-taking institutions from shs500 million to shs10 billion.
Kankunda attributed this to overtime erosion of the value of minimum capital requirements that needed to be aligned with macroeconomic developments, basing on GDP growth, headline inflation and depreciation of the shilling against the US dollar.
He added that the current microfinance deposit-taking institutions already have the minimum paid-up capital requirements.
“The committee observed that paid-up capital will enable banks to finance strategic development projects and sectors, which are largely financed with external borrowing and domestic syndication,” said Kankunda.
However, a minority report presented by Butambala County MP, Hon. Muwanga Kivumbi indicated that an increase in capital requirements for MDIs will stifle new entrants in the sector.
“High capital requirements might limit the lending capacity of MDIs particularly smaller institutions with limited resources. They may be cautious about extending loans, resulting in reduced access to credit for low-income borrowers,” Muwanga Kivumbi said.
He recommended that the requirement be increased from shs500 million to shs2 billion.
“Striking the right balance in setting capital requirements is crucial to ensuring a stable and inclusive microfinance sector that benefits both the institutions and the communities they serve,” he added.
Hon. John Teira (NRM, Bugabula County North) seconded the minority report noting that the cost of credit is very high in Uganda, and as such, a high capital requirement would close out new sector players.
Hon. Samuel Okwir (NRM, Moroto County) called for the reduction in the minimum paid-up capital to ensure entry of new players in the MDI sector, which he said, will promote competition.
MPs also questioned the committee’s decision that saw them consult only the Ministry of Finance and Bank of Uganda on the same.
Hon. Teira said microfinance institutions like Pride Microfinance Limited, FINCA, UGAFODE and EFC Limited should have been consulted.
“I am going to defer debate on this matter so that the Committee goes back to consult the stakeholders. Next time when you have a report, make sure that the stakeholders are involved and give their views,” Speaker Among said.