Microfinance in Uganda

Microfinance in

Presented by

Julia Kirya Brüggen

GIZ/AMFIU

Microfinance in

Uganda

Background on dataBackground on data

⇒ AMFIUAMFIU ‘State of the Microfinance Sector’ – evaluates data fromMFIs (self-reported) on an annual basis, here mainly 2012, data

collection from 2013 still on-going.

⇒ WorldbankWorldbank 2011 Global Financial Inclusion (Global Findex)

Database, 2014 Global Findex - with expanded data on payments - will

be released in April 2015be released in April 2015

⇒ FinscopeFinscope reviewes the demand side, it is a study of consumers'

perceptions on financial services and issues (2007, 2009, 2013)

Julia Brüggen* February 2014

Financial services for all?Financial services for all?

⇒ Worldwide: 50% of the total population has access to any form of formal financial services

⇒ Uganda: 20% of the adult population has an account with a formal financial institution (male: 26% and female 15%)

⇒ From the bottom 40% of the Ugandan population only 8% have an account in a regulated financial institution and 6% access loans or savings facilitiessavings facilities

Source: The Global Findex Database World Bank



50%

89%

42%40%

50%

60%

70%

80%

90%

100%

Access to Accounts

Account at a formal FI, male (% age 15+) Account at a formal FI, female (% age 15+) Account at a formal FI (% age 15+)


24%

42%

33%

20%17%

0%

10%

20%

30%

40%

World High income Sub-Saharan

Africa

Kenya Rwanda Uganda Tanzania



41%

86%

40%

50%

60%

70%

80%

90%

100%

Accounts in formal FIs - bottom 40%

Account at a formal FI (% age 15+)Account at a formal FI, income, top 60% (% age 15+)Account at a formal FI, income, bottom 40% (% age 15+)


41%

13%

19%

30%

8%6%

3%0%

10%

20%

30%

World High income Sub-Saharan Africa

Kenya Rwanda Uganda Tanzania Sudan



15%

23%

25%

13%

39%

37%

31%

23%

28%

27%

35%

41%

19%

13%

9%

23%

18-24

25-39

40-59

60+

Financial Access " mutually exclusive"

Formal bank

non-bank formal

informal


20%

10%

34%

25%

31%

22%

15%

42%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Uganda

16-17

excluded

Spource: Finscope 2013

MicrofinanceMicrofinance

•Micro- CREDIT

SAVINGS

FUND TRANSFER

INSURANCE

• Provision of diverse financial services to low-income people

• ‚Typical‘ characteristics: no physical collateral, groups, women, high(er)

interest rates

• Tool to fight poverty (?)


BackgroundBackground

•Groups/ROSCAs

• Grameen, Solidarity Loans

• Cooperative Movement

• 2005 the United Nations International Year of Microcredit

• From charity to business, from booming industry to crisis

• From Microcredit focus (1970s) to building inclusive

financial systems

Background in UgandaBackground in Uganda

� Long history of: Groups, Cooperatives (from 1900)

- Cooperative Societies Act of 1962

Cooperatives: Political interference and insecurity

started in the 1970s; Primary cooperatives and unions

– indebted/no service provision; new ‘wave’ in the

2000s following the “Prosperity for All” (Bonna


2000s following the “Prosperity for All” (Bonna

Baggaggawale) program. 2,351 SACCOs were

registered between 2004 and 2008

Background: Formal financial sector Background: Formal financial sector

⇒ Formal financial sector started with establishment

of first commercial bank (today Stanbic) in 1906 (AMFIU)

⇒ Formal microfinance sector started with Uganda

Women‘s Finance and Credit Trust in 1984 (today

Finance Trust Bank) (AMFIU)


Finance Trust Bank)

⇒ Today: 26 commercial banks, commercial bank

branches per 100.000 adults increased from 1.1 in

2004 to 2.5 in 2010 (Finscope)

Who is a (typical) Microfinance Client? Who is a (typical) Microfinance Client?

⇒ Low-income people

⇒ Often self-employed, household-

based entrepreneurs

⇒ “Micro-enterprises” include small

retail shops, street vending, artisanal

manufacture, and service provision


manufacture, and service provision

⇒ Average loan amount (outstanding)

in Uganda: ∼900.000 UGX

⇒ Average savings amount in Uganda:

∼120.000 UGX

⇒ Women

„Typical“ Microfinance client„Typical“ Microfinance client

Source: Finscope 2013

Typical credit needs?Typical credit needs?

Health

Education

Social Events

Pay of other

debts 25 – 60+

EEEE&&&&WWWW&&&&CCCC


Business/Agriculture

LivestockEmergency

debts

Send or receive

money

Daily expenses

Youth 18-24

25 – 60+

NNNNorthorthorthorth

KKKKampalaampalaampalaampala

All data: Finscope 2013. Table 15: Main reasons for utilizing credit services in 2013

MFIs: Provider of mf services MFIs: Provider of mf services

MFIs: Provider of mf services MFIs: Provider of mf services

NonNon--bank formalbank formal

Formal sectorFormal sector

SACCOs

MFIs

Mobile money

Tier I - III

InformalInformal

NonNon--bank formalbank formalSHG‘s

Financial SectorFinancial Sector

Tier Category of

Institutions

Number of institutions Number of

MFIs

Tier I Banks 26 2

Tier II Credit Institutions 3 2

Tier III Microfinance Deposit-

Taking Institutions

3 3

Tier IV MFIs and SACCOs MTIC: 2257 - 2065 SACCOs (Census 2010)

AMFIU:


2000: 129 Bank branches in Uganda

2012: 495 (BoU)

Agriculture and manufacturing: 21 percent of total bank credit (BoU)

MFIs: RegulationMFIs: Regulation

Tier Category of Institutions Regulation/Registration

Tier I Banks Regulated by the Bank of Uganda; Financial Institutions

Act 2004Tier II Credit Institutions

Tier III Microfinance Deposit-Taking

Institutions

Regulated by the Bank of Uganda; MDI Act 2003

Tier IV MFIs and SACCOs Only Registered as:

� The Companies Act, 1961

� The NGO (Amendment) Act 2006

� For SACCOs, the Registrar of Cooperative Societies


� For SACCOs, the Registrar of Cooperative Societies

(MTIC) under the Cooperative Societies Act (Cap.

112)

� No clear regulation for other savings and credit

schemes

Commercial Banks and Credit InstitutionsCommercial Banks and Credit Institutions

Name of Institution Year of Licensing No. of Branches

Centenary 1993 62

Uganda Finance Trust Ltd (MDI) 2005 (MDI), 2013

(Tier I)

29

PostBank 1998 31

Opportunity Bank 2008 16

� Centenary and Postbank: Part of their operations are considered as

‚microfinance‘


‚microfinance‘

� Opportunity Bank and Finance Trust focus on microfinance

� Equity Bank currently suspended their microfinance operations

MDIsMDIs

Name of MDI Year of Licensing No. of Branches

FINCA Uganda Ltd (MDI) 2004 25

Pride Microfinance Ltd (MDI) 2005 30

UGAFODE Microfinance Ltd (MDI) 2011 12

� By the end of 2012: 157,599 borrowers, 186b loans outstanding



(including Finance Trust)


(without Finance Trust

SACCOsSACCOs

⇒ Savings and credit co-operatives

⇒ Member owned, governed, used

⇒ Census 2010: 2417 fully registered SACCOs

⇒ 119 SACCOs reporting to AMFIU

⇒ 2012: 63.341 borrowers in 78 institutions, 60b loans outstanding (+26.000

borrowers and 60b loan portfolio of one institution)


borrowers and 60b loan portfolio of one institution)

⇒ 80% of the SACCOs founded after 2000

⇒ Most SACCOs located in West and Central, less distribution in Northern

and Eastern Regions

Tier IV MFIsTier IV MFIs

⇒ Companies with money lenders license (limited by shares or

liability)

⇒ Social Mission (which makes it different from a money lender)

⇒ Often with NGO background

⇒ Famous Tier IV MFIs: Hofokam, BRAC, Vision Fund

⇒ AMFIU recognizes 29 institutions with 224 branches (North:


⇒ AMFIU recognizes 29 institutions with 224 branches (North:

13%; West: 28%, Central: 42%, East: 16%)

Informal microfinanceInformal microfinance

• (Self-help) Groups:

• ROSCAs

• ASCAs

• VSLAs

• Investment Clubs, Savings Groups

• Burial societies, Welfare funds

• Any other savings and credit group


• Any other savings and credit group

• Group models with or without solidarity groups

• Regular meetings, strict rules, usually max 30 – 50 people, members

from one community, basic records

Informal microfinanceInformal microfinance

• 74% of Ugandans are accessing services in

groups/informal sector (Finscope)

• 31% of Ugandans are only accessing services from

the informal sector (Finscope)

• Rural: 35%

• Urban: 14%

• Males: 27%

Financial Access " mutually exclusive"


• Males: 27%

• Female: 24%

Finscope

20.30% 33.70% 30.60% 15.30%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Uganda

Formal bank

non-bank formal

informal

excluded

Mobile transferMobile transfer



Mobile transferMobile transfer

• Sending and receiving money between two people, national and

internationally (remittances)

• Population receiving and sending money increased from 30% in 2009

to 55% by 2013 (FINSCOPE, P.55)

• 5.1 million mobile money users in 2013 - 34 percent of the adult

population (FINSCOPE, P.62)

• Remittances: around $700m annually - from Kenya, UK, US


• Remittances: around $700m annually - from Kenya, UK, US (Daily

Monitor, 19th May 2013)

• Money received used mainly for consumption

Support and apex organizationsSupport and apex organizations

AMFIU

AMFIU: Association for

Microfinance Institutions in

Uganda: All MFIs (regulated

and non-regualted)

UCSCU: Cooperative

Savings and credit union:

apex for all SACCOs


UCSCUUCAUCA: Uganda

Cooperative Alliance:

Apex for all cooperatives

(SACCOs, marketing, pro

ducer, area, unions)

Additionally:

MSC

Oikocredit

Stromme

UCCFS

AMFIUAMFIU

National Association of Microfinance Institutions

Founded in 1996

124 members – 91 ordinary

Activities and Services: Research & Advocacy, Capacity Building for Members, Programmes for inclusion


Research & Advocacy, Capacity Building for Members, Programmes for inclusion (PWD, HIV), Performance Monitoring (financial and social), Research, Information dissemination, National conference, Complaints handling

PerformancePerformance

Performance of the institutions

• Products

• Outreach

• Portfolio

• Profitability


• Profitability

• Efficiency

• Trends

Products and servicesProducts and services

⇒ Loans

⇒Group lending (50% of the MFIs, 30% of SACCOs)

⇒ Interest: 24% - 36% per annum

⇒ 93% of the MFIs offer credit for commercial

purposes and 91% for agriculture

⇒Consumption loans: 69% for education, 58% for


⇒Consumption loans: 69% for education, 58% for

emergency

⇒ 49% for solar, rainwater harvesting, etc

Products and services: LoansProducts and services: Loans

⇒ Credit terms include: interest rates, repayment

terms, grace period, processing fees, legal procedures, and

other conditions.

⇒ 47 percent of the borrowers reported that a collateral

security was required



30%

40%

50%

60%

Saving characteristics

Uganda

female


0%

10%

20%

Banks Animals/Assets MFIs, SACCOs ROSCA, VSLAs Mobile Home

male



⇒Savings

⇒MDIs and SACCOs interest ranges from 2% to 5%

per annum, fixed deposits 5%-15% pa.

⇒Fixed deposits offered by 57% of the institutions

⇒ Junior accounts: 33%

⇒ Commitment savings: 20% of the regulated


⇒ Commitment savings: 20% of the regulated

institutions and 17% of the SACCOs

⇒ Insurance (formal insurance coverage 2%)

⇒ Money Transfer

Performance trendsPerformance trends

Outreach

Number of clients, borrowers, savers, branches

Portfolio quality

Portfolio at Risk

Profitability and

Sustainability

OSS

Efficiency and

Productivity

Cost of Funds

Operating


Average loans, savings

Gender, Regions

Loan Loss Ratio/Write-Off

Ratio

Risk Coverage Ratio

Portfolio Yield

Retun on Assets

Operating Expense Ratio

Costs per loan

Portfolio as a percentage of

assets


Outreach

Number of clients, borrowers, savers, branches



Gender, Regions

Performance trends: OutreachPerformance trends: Outreach

Outreach

Number of clients

Outreach:

Outreach indicators measure how many clients are

served

Help the institution to determine if they are reaching

their objectives and their intended target group



Gender

Regions

their objectives and their intended target group

Help the institutions to identify possible areas to

reach out to

Measure number of clients, borrowers, savers

(male, female)


MFIs: OutreachMFIs: Outreach

948,197

433,335

311,888

Industry OutreachIndustry OutreachIndustry OutreachIndustry OutreachDepositors Borrowers


311,888 241,438

Regulated Unregulated

Source: Kirya, 2013

14.60%

27.70%

19.10%

32.60%

42.60%

31.40%

23.70%

8.40%

Northern

Western

Financial Access per Region

Formal bank

non-bank formal

informal


20.70%

11.90%

46.80%

33.30%

15.40%

40.00%

17.20%

14.80%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Central

Eastern excluded

Julia Brüggen* February 2014Source: Finscope 2013


4%

7%

7%

3%

3%

8%

8%

5%

15%

21%

21%

12%

4%

6%

3%

3%

74%

59%

60%

77%

18-24

25-39

40-59

60+

Financial Access "Loans"

Formal bank

non-bank formal

informal

Family/Friends


6%

2%

4%

7%

5%

3%

18%

11%

15%

5%

9%

4%

65%

73%

74%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Uganda

16-17

18-24Family/Friends

excluded


Performance trends: OutreachPerformance trends: Outreach

Outreach

Number of clients

Female borrowers:

47 % of all the total borrowers in MDIs,

80% in unregulated MFIs

29% in SACCOs

Female BorrowersFemale BorrowersFemale BorrowersFemale Borrowers



Gender

Regions

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

90.00%

MDIs MFIs SACCOs

Female BorrowersFemale BorrowersFemale BorrowersFemale Borrowers

Female borrowers in %

Percentage of Loan Portfolio with female borrowers

Source: Kirya, 2013


Portfolio quality

Portfolio at Risk


Loan Loss Ratio/Write-Off Ratio

Risk Coverage Ratio

Performance trends: PortfolioPerformance trends: Portfolio

Portfolio quality

Portfolio at Risk

Portfolio Quality:

Portfolio is the major asset generating income for all

SACCOs

A good quality portfolio indicates an efficient

management and well developed procedures


Loan Loss Ratio/Write-

Off Ratio

Risk Coverage

Ratio

management and well developed procedures

Indicators help to identify potential risk based on

current performance

Indicators help to measure if institution is adequatly

prepared to cover potential loan loss


Portfolio quality

Portfolio at Risk

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

PAR 30

MDIs

SACCOs

MDIs 2013 (est)

SACCOs 2013 (est)



Off Ratio

Risk Coverage

Ratio

� PAR among SACCOs high

� Risk coverage ratioSACCOs: 30 – 36%Tier IV MFIs: 60%Regulated institutions: 60%

0.00%

2.00%

4.00%

Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13

Source: Kirya, 2013


Portfolio quality

Portfolio at Risk

14.00%

16.00%

SACCOs: PAR trend 2012

� PAR reducing throughout the year

� Around 4% of the loans are on the level to be written off



Off Ratio

Risk Coverage

Ratio

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

Q1 Q2 Q3 Q4

PAR (30 Days)

PAR (60 days)

PAR (90 Days)

PAR (181 days)

Loan loss ratio

Source: Kirya, 2013


Profitability and Sustainability

OSS


Portfolio Yield

Retun on Assets

Performance trends: Profitability and SustainabilityPerformance trends: Profitability and Sustainability

Profitability and

Sustainability

OSS

Profitability and Sustainability:

Important to make profits to be financially sustainable, without the help of donors

Balance the profit, to enable responsible growth and offer low cost services


Portfolio Yield

Retun on

Assets

offer low cost services

Efficiency should lead to increased outreach, quality service delivery, responsible compensation

Indicators to measure how well does the institution controls its costs and the income (mainly its interest rate)

Compare income to balance sheet to measure hos well assets are used


Profitability and

Sustainability

OSS

� 86% of the institutions reported a positive return (after

taxes and grants) in 2012

� Unregulated institutions perform better under

profitability


Portfolio Yield

Retun on

Assets

Source: Kirya, 2013


Profitability and

Sustainability

OSSEast

Central

SACCO RoA per Region


Portfolio Yield

Retun on

Assets

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Northern

Western

ROA <5%

ROA <10%

ROA >10%

Source: Kirya, 2013


Profitability and

Sustainability

OSSPortfolio 1b - 2b

Portfolio 2b-3b

Portfolio 3b-4b

Porfolio above 4b

SACCO Return on Assets per size of institutions


Portfolio Yield

Retun on

Assets

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Portfolio below 100m

Portfolio 100-250m

Portfolio 250 - 500m

Portfolio 500 - 750m

Portfolio 750 - 1bROA <5%

ROA <10%

ROA >10%

Source: Kirya, 2013


Efficiency and Productivity

Cost of Funds




Costs per loan

Portfolio as a percentage of assets

Performance trends: Efficiency and ProductivityPerformance trends: Efficiency and Productivity

Efficiency and

Productivity

Cost of Funds

Efficiency and Productivity

Important to manage costs and resources well

(resources can be assets, but also personnel)

How much of the assets are invested in the loan

portfolio



Costs per loan


assets

portfolio

Measures the costs of the external funds which are

used to give out as loans

Measures if our expenses are ‚appropiate‘ and if our

staff is productive and efficient


Efficiency and

Productivity

Cost of Funds

Portfolio as a Percentage of Assets

� Operational expenses represent around 80% of the total

expenses of a Ugandan MFI

� Low cost of funds: 4.8% for SACCOs, 5.4% for

unregulated MFIs and 8.23% for MDIs



Costs per loan


assets

69%

78%

73%

30.71%

21.85%

27.44%

MDI

SACCO

MFI

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Portfolio as a Percentage of Assets Non Loan Assets Source: Kirya, 2013


Efficiency and

Productivity

Cost of Funds

� Operational expenses ratio

� Personnel expenses

Type of institution Benchmark Actual percentage

MDI <60% 42.6%

MFI <20% 22.6%

SACCO <20% 32.6%



Costs per loan


assets

� Personnel expenses

49%

41%

55%

0%

10%

20%

30%

40%

50%

60%

MDIs SACCOs MFIs

Personnel expenses

Source: Kirya, 2013


Efficiency and

Productivity

Cost of Funds



Costs per loan


assets

Source: Kirya, 2013

Growth and TrendsGrowth and Trends

� Slow growth in borrowers continues (e.g. MDIs around 4% in

2013, reduction in SACCOs)

� More success in increasing savers/account holders among regulated

institutions, less in SACCOs (e.g. MDIs +12%, so far no growth in

SACCOs)

� Income/Profitability situation doesn’t seemed to have improved

among regulated institutions, for SACCOs it depends on location and


among regulated institutions, for SACCOs it depends on location and

size

� Estimated growth of loan portfolio (MDIs around 15%, SACCOs

around10%)

SWOT: Microfinance SectorSWOT: Microfinance Sector

Strengths Weaknesses

SWOT


Opportunities Threats

Microfinance in Uganda

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