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IMPROVED MONITORING & SUPERVISION OF TIER 4
There
are 4 Tiers or types of financial institution defined under the Microfinance
Deposit Taking Institutions Act of 2003.
- Tier 1: Commercial
Banks licensed under the Financial Institutions Statute, 1993
- Tier 2: Credit Institutions
licensed under the Financial Institutions Statute, 1993
- Tier 3: Microfinance
Deposit-Taking Institutions (MDIs) licensed under the Microfinance Deposit-Taking
Institutions, Act 2003
- Tier 4: Microfinance
Institutions that are involved in MF business but do not fall under
the Tiers above mentioned
The enactment of the
MDI Act 2003 still leaves a significant need for regulation
of Tier 4 institutions. Among Tiers 4 institutions, Savings and Credit
Cooperatives (SACCOs) alone can collect and intermediate deposits from
their own members (though not from the general public). SACCOs are registered
by the Commissioner of Cooperatives who works under the Ministry of Tourism,
Trade and Industry (MTTI). It is widely recognized that the MTTI does
not have the capacity to monitor and supervise the approximately 1,500
registered SACCOs. At the same time, the SACCOs have been supported by a variety of apex and support agencies
including: Uganda Cooperative Alliance
(UCA), the Uganda Credit and Savings Cooperative Union (UCSCU), the network
of District Private Sector Promotion Centers, USAID’s Rural SPEED project,
the European Union’s SUFFICE project, the Microfinance Support Centre
Ltd, and others. These institutions have given support, but with limited
ability to enforce the advice given to the assisted institutions. Also,
the large number of support institutions occasionally led to donor arbitrage
by the Institutions.
FSDU has encouraged it
partners to think outside the box and in one such incident, funded PostBank
to launch a mobile banking service in
FSDU has been one of
the major actors working to improve transparency, professionalism and
support among the Tiers 4, primarily through consumer education, participation
in policy dialogue, data gathering and dissemination, and support to small
pilot projects. One such pilot was the prospect for an integrated delivery
of financial services by Agaru SACCO in Pader District (
FSDU’s collaboration
with others has resulted in the compilation of background information
on Tier 4 Institutions:
Regulating & Strengthening
Tier 4 Institutions in Uganda
The Effects of Wholesale Lending to SACCOs in Uganda
by Alex Fiorillo
Accounting
and Audit Working Group
In February 2007, the
Accounting & Audit working group joined the Capacity Building Steering
Committee which is made up of microfinance stakeholders providing capacity
building and wholesale loans to Tier 4 Institutions.
The objectives of the Working group were to overcome the following shortcomings
in the financial systems of Tier 4 institutions and enhance transparency:
- The low quality
of financial management and financial statements produced by the institutions’
accountants / bookkeepers
- The lack of appropriate
skills to audit these institutions by small and medium sized external
audit firms and the District Commercial Officers (SACCOs)
- The high cost
of Audit services.
The Group proposed
the following actions to resolve the challenges above;
- Enhance the capacity
of Auditors to audit Tier 4 institutions through training using the
CGAP Financial reporting and audit guidelines
- Standardize the
Tier 4 Accounting systems to facilitate training and audit
- Enhance the skills
of the institutions’ accountants / bookkeepers through training.
- Negotiate with the
External Auditors to lower their audit fees, perhaps in exchange for
a guaranteed amount of business by clustering institutions and by improving
the quality of the institutions’ financial systems.
- Provide a reasonable
amount of subsidy to kick-start the audit market, once the above steps
have been taken satisfactorily
FSDU took the lead
in July 2005 by piloting the training of the staff of the 15 members of
the Association of Microfinance Institutions in Ankore (AMFIA) using local
service providers in; Fundamentals of Accounting 1, Financial Analysis
and their external Auditors in Auditing MFIs using CGAP guidelines. The
pilot was to test the materials for their appropriateness and determine
whether the concept would work. Thereafter the training was rolled out
during 2006 to other parts of
Training manuals:
Fundamentals Of Accounting
Manual #1
Fundamentals Of Accounting
Manual #2
MFI Audit Course Manual
In August 2006, ACLAIM Africa Ltd. were contracted to carry out a
comprehensive study of the effects of the above training on skills acquisition
and adoption of better practices resulting in improved financial statements.
The consultants were also to determine whether the auditors that were
trained were in fact using their new skills.
ACLAIM presented the results in a report:
Report on FSDU Training
Evaluation
Subsequently, FSDU commissioned a Consultant
to carry out an Assessment of Capacity Gaps in the work & functions
of Accountants and Auditors of Ugandan SACCO.
An
assessment of Capacity Gaps in the work & functions of Accountants
and Auditors of Ugandan SACCO
FSDU also funded the development of
a Model Accounting Policy and Procedures Manual for SACCOs to enable them
to have the basis for sound financial management systems
A
Model Accounting Policy & Procedures Manual for SACCOs
Other
Related Documents
FSA Survey - Two Years Later
Money Lenders Study - Lessons from Uganda by
Ernest Kaffu and Paul Rippey
