Equity Split for Time Worked by won10363


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									Regulation and Transformation

     The Experience of Uganda

         Joanna Ledgerwood
        Chemonics International
Uganda Microfinance
Presently over 500 MFIs
5-8 covering all costs (FSS)
Highly competitive and saturated in areas (urban)
Most MFIs using blend of Grameen/Village
Banking methodology
   Weekly payments
   4-6 month loan terms
   Group lending
   Compulsory savings
   Cater to trade sector more than agriculture
   Minimal voluntary savings services
Uganda Microfinance

Increasing pressure to provide savings
services to poor and in rural areas
New law recently passed to regulate Micro
Deposit-taking Institutions (MDIs)
 Assistance from donors (GTZ, USAID)
 Highly consultative process
 MFI practitioners, MPs, Bank of Uganda,
  government and donor representatives all in
  MDI Bill
MDIs can:
 Accept deposits from the public
 On-lend these deposits
MDIs cannot:
 Engage in foreign exchange transactions
 Operate current accounts
 Use the term „Bank‟ in their name
 Onlend compulsory savings
  MDI Bill
To qualify for an MDI license:
  Company limited by shares
  Proven „track record‟ in microfinance
  Minimum paid-up capital of 25,000 currency points
  (currently one point is Ush20,000 or US$10)
  Capital adequacy ratio of 15% of risk-weighted assets
  No single owner with more than 30% shares
  Any person holding more than 10% shares must be
  approved by BOU
  Senior management and board members must be approved
  by BOU
Benefits of Regulation
For institution
   Diversify sources of funding
   Decreased reliance on donor funds/ “whims”
   Increase services to clients/Professional image
   Become more efficient and financially sound
   Gain competitive advantage over non-regulated MFIs
For clients
   Savings services
   Potential reduction in costs
For industry
   Increased outreach to rural areas
   Things to Consider
Institutional Structure
   Ownership (ideal mix – social/commercial investors
   /NGO/founders; exit strategies)
   Legal form (share company; finance company; bank)
   Transfer of assets (move clients or portfolio?; donor
   contributions; cash requirements)
   Capitalisation and leverage (minimum capital; growth
   plans; hurdle rate; debt/equity split of NGO
   Governance (role of NGO; board seats; board
   constitution; voting rights; terms; committees)
Things to Consider
Operational Issues
 Senior management
 Corporate culture – NGO vs. for-profit
 Financial management/treasury
 Risk management and internal control
 Back-office operations
 Market, products and services
 Human resources
 Budget/costs
Technical challenges
  Inadequate skills in management and staff; often board
  as well
  Modest MIS (or inadequate)
  Inadequate internal controls; risk management
  How to instill systemization/standardization (key
  qualities for Central Bank) without losing
  flexibility/innovation (key for customer service)
  Low product innovation – new target market; wealthier
  clients demanding savings and individual loans
  Lack of appropriate TA providers locally
Transition from founder controlled institution to share
company with external investors/directors (hard for
founders to cede control of institution)
Managing staff expectations (fear that there won't be
place for them in new institution)
Finding necessary local skills for key new management
positions (treasury, internal audit, CFO, etc.)
Finding equity investors – local and social/commercial
investors (need mechanisms for local stakeholders to
participate in initial capitalisation and avoid domination
of external shareholders)
What has worked well?
Clear transformation plan, with clearly identified
activities, timeline and responsibilities
Full time, supported Transformation Manager
Easiest with local MFIs with competent board and
management (imperative)
Cooperation with Central Bank, donors and
Direct technical assistance and training (often
drawing from international experience)
What have we learned?
Commitment by all board members to
transformation process and to external investors
(need buy-in from the top for it to work)
Senior management skills critical
TA funding in key areas (knowledgeable donors)
Market analysis and customer care aspects critical
Need solid communication strategy (both internal
and external)
Sound regulatory environment critical
Long and expensive process (but worth it!)

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