The Financial Sector of Uganda
The Ugandan financial sector is relatively well developed and has remained resilient to both internal and external shocks. The sector consists of a range of formal, semiformal and informal institutions. The formal institutions include banks, Microfinance Deposit-taking institutions, Credit Institutions, Insurance companies, Development Banks, Pension Funds and Capital Markets. Uganda ranks in 120th place out of 138 countries in affordability of financial services, according to the Economic Forum Global Competitiveness Report (2016-2017)
Contribution of the sector to the economy
Growth in financial and insurance services contracted by 1.8 percent in 2016/17 from 5.8 percent in the 2015/16. The table below shows real GDP growth rates of the sector for FY2013/14 to FY2016/17.
Source: Background to the budget fiscal year 2017/18
These include 23 Commercial banks , Microfinance deposit taking institutions, 3 Credit Institutions, 5 other non-banking institutions, 252 forex bureaux, 29 Insurance Companies, 2 Development Banks, Pension Funds and Capital markets
There are 24 commercial banks with over branches across the country regulated and supervised by Bank of Uganda. The banking sector is in a sound and stable financial state, total assets grew by 6.1% from UGX 21.6 trillion to UGX 22.9 trillion between June 2015 to June 2016. Generally, banks held adequate liquidity and capital buffers, as the ratio of liquid assets to total deposits increased from 43.4 per cent in June 2016 to 48.8 percent in March 2017.
BOU raised its key policy central bank rate (CBR) from 13% in June 2015 to 17% in October 2015. This was maintained until April 2016 and has been gradually revised down to 10% by June 2017. The status of banks as June 2016 was as follows
|List||Assets 2016 “UGX in billions”||Market share %||no of branches||No of ATMs||No of staff
|ABC Capital Bank Limited||49.9||0.22||4||0||NA|
|Bank of Africa Uganda Limited||688.5||3.09||34||33||NA|
|Barclays Bank of Uganda Limited||1900||8.53||42||71||NA|
|Bank of Baroda (Uganda) Limited||1470||6.6||15||20|
|Bank of India
|Cairo International Bank Limited||NA||NA||6||5|
|DFCU Bank Limited||1720||7.72||67||NA|
|Diamond Trust Bank Uganda Limited||1430||6.42||36||35|
|Ecobank Uganda Limited||280.4||1.26||14||36|
|Equity Bank Uganda Limited||642.7||2.88||31||33|
|Finance Trust Bank||166.2||0.75||NA||NA|
|Fina Bank Uganda Limited||NA||NA||NA||NA|
|Global Trust Bank (U) Limited||NA||NA||NA||NA|
|Housing Finance Bank Limited||680.2||3.05||19||21|
|KCB Bank Uganda Limited||715.7||3.21||16||18|
|NC Bank Uganda Limited||169.9||0.76||2||2|
|Orient Bank Limited||554.1||2.49||21||23|
|Stanbic Bank Uganda Limited||4580||20.56||100||193|
|Tropical Bank Limited||266.8||1.2||16||NA|
|United Bank for
NA –information not readily available
Microfinance deposit taking institutions
There are currently five (5) Microfinance Deposit Taking Institutions (MDIs) which include
- FINCA Uganda Ltd. (MDI)
- Pride Microfinance Ltd. (MDI)
- UGAFODE Microfinance Ltd. (MDI)
- EFC Uganda Ltd. (MDI)
- YAKO Microfinance Ltd. (MDI)
All Microfinance Deposit-Taking Institutions (MDIs) were financially sound during the financial year. The total assets of MDIs increased by 6.8 per cent from Shs. 442.0 billion in June 2016 to Shs.472.2 billion in March 2017. The increase in assets was mainly driven by increased balances with other financial institutions in Uganda of Shs.39.6 billion. MDI’s net loans within the same period fell by 3 per cent from Shs. 278.7 billion to Shs. 270.2 billion. This followed an increase in net loans to Shs.286.7 billion in December 2016. Similarly, customer deposits increased by 2.7 per cent from Shs. 198.8 billion in June 2016 to Shs. 208.0 billion in March 2017.
Uganda Micro Finance Regulatory Authority to regulate non-deposit taking micro finance institutions, savings and credit cooperative organization societies (SACCO’s)
There are currently four (4) Credit Institutions which include the following;
- Mercantile Credit Bank Ltd
- Post Bank Uganda Ltd
- Opportunity Bank Uganda Ltd
- Top Finance Bank Uganda Ltd
All Credit Institutions (CIs) remained well capitalized, liquid and financially sound during FY 2016/17. The total assets of CIs grew during the financial year by 6.1 per cent between June 2016 and March 2017 mainly on account of increased lending activity. Net loans and advances increased by 7.3 per cent from Shs.233.6 billion as at end June 2016 to Shs. 250.5 billion as at end March 2017. All institutions maintained paid-up capital above the statutory minimum of Shs.1 billion and also complied with the minimum core capital to risk weighted assets ratio requirement of 8 per cent. CI’s total capital grew from Shs. 80.4 billion in June 2016 to Shs. 93.0 billion at the end of March 2017.
Non-Bank Financial Institutions
The non-bank financial institutions supervised by the Bank of Uganda are:
- Credit Institutions Micro-finance
- Micro Finance Deposit-taking Institutions
- Forex Bureaux
- Money Remitters
There are 252 forex bureaus regulated and supervised by Bank of Uganda
The use of mobile money remains a viable and popular option to access and transfer funds, with various developments observed during the year. Mobile money has been in existence over the last eight years and has had tremendous impact on access to the delivery of financial services to the populace. Starting at transaction values of shs 490 million and offerings by one player in March 2009, the service had by March 2017 grown to register transaction values of Shs. 4,969.2 billion across 7 players. By March 2017, annual growth rates in transaction volumes and registered users stood at 47.82 per cent and 18.97 per cent, respectively, compared to 35.51 percent and -0.29 percent over the same period in the previous year
mobile money users & transactions volumes March 2009-march 2017
Regulatory Framework of the Financial sector in Uganda
The Bank of Uganda is responsible for supervising, regulating, controlling and disciplining all financial institutions (Section 5 (2) (j) Bank of Uganda Statute, 1993). • The Financial Institutions Act (FIA) 2004, governs the regulation and supervision of financial institutions (banks and credit institutions) while the Micro-Finance Deposit-Taking Institutions Act (MDI) 2003 governs the regulation of micro-finance institutions.
The Banking Sector regulated by Bank of Uganda is governed by;
- Financial Institutions Act, 2004,
- Micro Deposit-taking Institutions Act, 2003
- Foreign exchange Act, 2004
- Anti-Money Laundering Act, 2013
- Implementing Regulations regarding: Licensing, Ownership, Capital Adequacy, Credit Classification, Credit Concentration, Credit Reference, External Auditors, Forex, Insider Lending, Liquidity, Corporate Governance and Consolidated Supervision , Anti-money Laundering.
- Guidelines (Risk Management, Consumer Protection.
- Tier IV Microfinance Institutions and Moneylenders Act (2016)
The Bank of Uganda (BoU) is the Central Bank of the Republic of Uganda. It was opened on the 15th August 1966. It is 100% owned by the Government of Uganda but it is not a government Department. Bank of Uganda conducts all its activities in close association with the Ministry of Finance, Planning and Economic Development(MoFPED). Bank of Uganda is responsible for monetary policy and maintaining price stability.
The Bank of Uganda (BOU) is the regulator and supervisor of the formal banking sector, including commercial banks, credit institutions and finance companies, Microfinance Deposit Institutions (MDIs), Forex Bureau and Money Remitters. BOU regulated and supervised financial institutions that mobilize deposits, including banks, Microfinance Deposit Institutions (MDIs), and credit and finance companies that are authorized to mobilize deposits and make collateralized and non-collateralized loans to customers.
The Bank of Uganda is also in charge of approval and supervision of mobile money services. It can issue directives regarding mobile money operations. The Uganda Communications Commission (UCC) is responsible for licensing and supervision of mobile network operators (MNOs). Mobile money in Uganda is a financial service provided by supervised and licensed financial institutions in partnership with mobile money service providers.
The industry currently boasts of 29 licensed insurance companies, of which 21 are General (Non-Life) insurance companies, 6 Life companies and one Reinsurance Company. The industry has 26 licensed insurance brokerage companies, 1 reinsurance broker, 21 Loss Assesors, Surveyors and Adjusters and 13 Health Membership Organizations (HMOs).
The insurance industry has contributed to and benefited from economic development in Uganda. Gross Written Premiums (GWP) increased from UGX 502 billion in 2014 to UGX 611 billion in 2015 representing a 28% growth. The sector which is 76% dominated by non-life business benefited from the increase in insurable assets leading to the uptake of local insurance by large infrastructural projects, increase in uptake of loans leading to increased demand for Loan Protection Insurance.
In terms of composition, Non-life business continued to dominate the insurance industry in terms of premiums underwritten. It accounted for 75.99% of the total industry premiums compared to life which accounted for 16.34% while HMOs contributed 7.67% of the total premiums in 2015. The life Insurance premiums continued to grow relatively much faster at a rate of 35.67% in 2015 while Non-life and HMOs grew by 21.47% and 0.26% respectively. The proportion of life insurance premiums in total premiums grew from 13.7% in 2014 to 16.34% in 2015. This is attributed to the effective separation of the hitherto composite companies, increase in private sector credit (credit life), product innovation, aggressive marketing by individual companies, among others. The Insurance Industry has experienced rapid growth overtime as shown in the table below:
|Total Industry Gross written Premium (Ushs. Billions)||239.9||296.8||352||463||504.8||612.1|
|Non-life Gross(Ushs. Billions)||216.3||262.2||313||351.4||384||464.4|
|Life Gross(Ushs. Billions)||23.6||34.6||39||55.4||74||99.8|
|HMOs Gross(Ushs. Billions)||–||–||–||56||46.8||47.8|
|INSURANCE PENETRATION (%)||0.65||0.65||0.66||0.85||0.86||0.76|
The Insurers’ (including HMOs) Net Asset base (i.e. Assets less Liabilities) rose from UShs 316 billion in 2014 to UShs 373 billion in 2015 representing a growth of 18%. This highlights the growing strength of companies to handle insurable risks locally and provide adequate protection to the insuring public. The Gross claims paid for both Life and Non-life insurance (including HMOs) rose from UShs 184 billion in 2014 to UShs 214 billion in 2015 representing a growth of 16.08%. This excludes the outstanding claims and those that will emerge from the long-term policies. The 21.58% growth registered in 2015 is impressive compared to the 9% growth registered in 2014. This is mainly due to the uptake of local insurance by large infrastructural projects. Significant premiums have been realized from infrastructural projects such as Karuma, Isimba, Entebbe airport, Entebbe express highway, Jinja Bridge, various small dams and road projects. On the financial side, the total networth increased by 12% (from UShs 311 billion in 2014 to 347.3 billion in 2015) for non-life companies while total networth for life companies grew by 21% (from Ushs 43.8 billion to 53 billion in 2015). HMO’s networth on the other hand grew from UShs -6.8 billion in 2014 to 1.3 billion in 2015 representing a growth of 119%. The future of the insurance sector in Uganda lies in re-engineering strategies and processes to protect the companies so that they are strong and able to continue being available for all those who count on them.
Regulatory framework of Insurance industry
The Insurance Regulatory Authority is the Supervisor and Regulator of the insurance industry in Uganda. It was established under the Insurance Act, (Cap 213) Laws of Uganda, 2000 (as amended) with the main objective of “ensuring Effective Administration, Supervision, Regulation and Control of the business of insurance in Uganda”
The current legal and regulatory framework of the insurance industry in Uganda includes the following:
- The Insurance Act, (Cap213) Laws of Uganda, 2000.
- The Insurance Regulations, 2002.
- The Insurance (Amendment) Act, 13, 2011
- The Insurance (Investment of Paid Up Capital and Insurance Funds) Regulations, 2008.
- The Insurance (Amendment of Brokers Minimum Paid-up Capital and Security Deposit) Instrument, 2013
- The Motor Vehicle Insurance (Third Party Risks) Act (Cap 214)
- The Marine Insurance Act, 2002
- Workers Compensation Act (Cap 225) Laws of Uganda, 2000
The Insurance Act (2000) was amended in the FY 2015/16 to strengthen the legal and regulatory framework for the sector. The amendments covered compliance with Insurance Core Principles (ICPs) and Financial Action Task Force (FATF). In addition, risk based supervision was introduced, improved harmonization with EAC requirements and the introduction of other international best practices were considered.
Uganda Insurance Commission
There is established a Uganda Insurance Commission which shall be a body corporate with perpetual succession and a common seal and may sue or be sued in its corporate name.
The object of the commission is to ensure the effective administration, supervision, regulation and control of the business of insurance in Uganda.
The functions of the commission
- establish standards for the conduct of insurance and reinsurance business;
- license all persons involved in or connected with insurance business, including insurance and reinsurance companies, insurance and reinsurance intermediaries, loss adjusters and assessors, risk inspectors and valuers;
- approve texts of policies proposal forms;
- approve minimum rates of insurance premiums and maximum commissions in respect of all classes of insurance;
- safeguard the rights of insurance policyholders and insurance beneficiaries to any insurance contract;
- provide a bureau to which complaints may be submitted by members of the public;
- advise the Government on adequate insurance protection and security for national assets and national properties;
- promote a sound and efficient insurance market in the country;
- supervise and control transactions between insurers and reinsurers;
- ensure strict compliance with this Act and regulations made under it and any other law relating to insurance; and
undertake other functions as the Minister may designate
Anti -money laundering
FIA is a government agency established by the Parliament of Uganda to monitor, investigate, and prevent money laundering in the country. It is also responsible for the enforcement of Uganda’s anti-money laundering laws and the monitoring of all financial transactions (including counter terrorism financing) inside the country’s borders.
The East African Development Bank (EADB) is a development finance institution with the objective of promoting development in the member countries of the East African Community.
The East African Development Bank (EADB) was established in 1967 with the mission to provide financial and other support to its member countries, which currently are Kenya, Tanzania, Rwanda and Uganda.
Uganda Development Bank Limited (UDBL) is a public enterprise wholly owned by the Government of Uganda and carrying on business as a Development Finance Institution (DFI).
The bank, a successor company to Uganda Development Bank, was incorporated as a limited liability company under the Public Enterprises Reform and Divestiture Act, Cap.98, Laws of Uganda and it is mandated to finance enterprises in key growth sectors of the economy. The Bank has been in existence since 1972.
UDBL re-positioned itself as a key partner to the Government of Uganda in delivering its National Development Plan (NDP).
The main objective of UDBL is to promote and finance development in various sectors of the economy with particular emphasis on agriculture, industry, tourism, housing, and commerce.
In order to deliver this aspiration, the Bank focuses on the key growth sectors of the economy by financing development projects at attractive terms.
The Bank supports Small & Medium Enterprises (SMEs) and large scale development projects in the various key growth sectors notably;
- Infrastructure development;
- Primary agriculture, fisheries and livestock and, agro-processing;
- Natural resources extraction;
- Hospitality and Tourism;
- Real estate development;
- Information technology and telecommunication;
- Social services like Education including vocational and tertiary education and, health and
- Trade and Commerce Sectors.
For years, Uganda’s pension coverage has been skewed towards the formal sector, specifically through the National Social Security Fund (NSSF), excluding the informal sector, persons who are self-employed and those working in Small and Medium Enterprises (SMEs). Uganda Retirements Benefits Regulatory Authority (URBRA) URBRA has so far licenced 66 schemes with NSSF being the biggest and mandatory scheme where most employees save for retirement. Currently, URBRA handles about 1.9 million members from the formal sector against the country’s total labour force estimated to be 15 million people.
Pension Sector performance
During 2015, assets grew at a rate of 25% from UGX 5.2 trillion to UGX 6.5 trillion. The ratio of pension assets to GDP increased from 7.2% at the end of 2014 to 8.1 % at the end of 2015.
Regulatory framework of pension sector
Pension sector in Uganda is regulated by Uganda Retirements Benefits Regulatory Authority (URBRA).
Uganda Retirement Benefits Regulatory Authority (URBRA) is a statutory body established in 2011 under the URBRA Act 2011. The Authority has the overall mandate of supervising, regulating the establishment, management and operation of retirement benefits schemes and protecting the interests of members and beneficiaries of retirement benefits schemes in Uganda.
In FY 2017/18, Government will develop the Uganda Retirement Benefits Law that will establish one National Scheme and other mandatory Schemes with percentage shares of the Mandatory contributions. The new law shall also provide for social security for the informal sector in Uganda. Government will also, in FY2017/18, develop the National Payments and Settlement Policy framework that will provide a basis for enactment of the payment systems Act.
The current pension schemes comprise of the National Social Security Fund (NSSF), the Public Service Pension Scheme under the Ministry of Public Service, and numerous occupational (employer-based) voluntary saving schemes.
Ugandan existing pension schemes
|Scheme name||Type||Population served||No of members||Financing mechanism||Legal framework|
|National social security fund||DC||Private||300,000||Mandatory||NSSF Act|
|Occupational pensions scheme||DC||Private||N/A 50-6- schemes||Voluntary||UG Insurance Act|
|Public service pension scheme||DB||Public||250,000||Non- contributory||Pensions Act|
|Armed forces pension scheme||DB||Public||N/A||Non-contributory||A.F, Pensions Act|
DC –defined contribution and DB- defined benefit.
Uganda has a workforce of about 15 million, however only 5% of this workforce covered by the current pension system comprising of NSSF, the Public Service Pension Scheme and occupational voluntary savings. NSSF, the main player as regards collections from the private sector, has less than half a million savers
Challenges in the pension sector
i) Public Service Pension Scheme
The current Public Service Pension Scheme is faced with number of challenges which, among others include;
- The scheme’s long term financial (fiscal) sustainability is greatly impaired partly due to the several parametric changes;
- Unpaid pension arrears due to persistent budget constraints. The stock of pension arrears has greatly increased to unsustainable levels and is still accruing
- Governance problems characterised by poor financial management, including poor record keeping resulting into lack of trust and confidence in the pension system.
ii) National Social Security Fund
- Governance and administrative challenges
- Failure of employers to register their employees with the Fund.
- Failure of employers to make contributions despite making deductions from their employees.
- Pension savings are often taken as lump sums with the risk that people outlive their resources.
- Low activity rate of 38% threatens adequacy of pensions, especially due to shorter contribution periods and lower average earnings.
iii) Voluntary Occupational Schemes
- The small size of funds creates challenges in term of costs, access to asset classes and risk management, leaving schemes and their members in a sub-optimal position.
- In addition, smaller schemes are managed on a part-time or voluntary basis, which lead to a host of risks related to governance, investment expertise and succession planning. However, it is important to note that while risk management is critical for small schemes, the added costs and complexity of such systems can be difficult to justify. A pooling framework could therefore facilitate cost effectiveness, better investment and risk management.
- Withdrawal of savings before retirement is very common which defeats the purpose of saving for retirement.
- No cost of living adjustment index to benefit payments. Price inflation creates a huge unpredictability for adequacy of retirement savings.
- Design details are not consistent with international best practices in key areas such as:
- Benefit and contribution formulas.
- actuarial studies (these are not transparent and not undertaken periodically with a view to adjust benefits and contributions)
- cost structures
- administration and compliance;
- portability and vesting; and
- investment policies and management
The Uganda Securities Exchange (USE) has a total of 16 companies trading on the bourse with 4 companies cross listed from neighbouring Kenya. The capital market in Uganda still lags behind in the region with market capitalisation as a percentage of GDP stood at 5.5% of equity and 0.27% for debt as at October 2015. In Kenya, stock exchange market capitalisation to GDP was at 41% during the same period.
Regulatory framework of capital markets in Uganda
The Capital Market in Uganda is regulated by the Capital Markets Authority (CMA) which was set up by the CMA Statute No. 1 of March 1996 as an autonomous body under the Ministry of Finance, Planning and Economic Development. CMA is responsible for supervising the securities markets including licensing formal exchanges, dealers, asset managers and collective investment schemes.
The information under the sector is organised as follows;