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Parliament Passes New Law Regulating MDIs, Rejects Proposal To Have Them Use ‘Bank’ Name

Haruna Kyeyune, Minister of State for Finance (Microfinance)

Parliament has passed into law The Micro-Finance Deposit Taking Institutions (Amendments) Bill, 2022, and rejected the proposal to have MDIs use the name Bank in their businesses, with MPs saying it would create confusion in Uganda’s financial sector.

This followed a proposal by Haruna Kyeyune, Minister of State for Finance (Microfinance) who had moved a motion seeking Parliament to reconsider section 5 of the principal Act permitting MDIs to use the word Micro Finance Bank after their names.

During the consideration of the bill recently, Parliament failed to agree on a final position after Government argued that the change n name would enhance safety and reliability among customers who have been shunning MDIs for not bearing the name banks.

Kasolo said that if MDIs are called banks, it will create confidence among the savers and customers to save their money with MDIs and they will still be defined as is the case in the MDIs Act so as to allay fears in the public.

“To allow existing MDIs to moblise deposits this is because the existing customers seek to deposit their monies with the commercial banks that they perceive to be safer because they carry the word banks. It is these same customers that run to MDIs for borrowing because they think it is just for borrowing, to them they think they lack credibility and they don’t understand that it is regulated by Bank of Uganda,” said Kasolo.

Deputy Attorney General, Jackson Kafuuzi further defended the proposal arguing that naming MDIs as banks creates enough difference as opposed to commercial banks and there won’t be any confusion within the financial sector because these MDIs don’t issue cheques, they don’t operate forex bureaus.

He said, “That nomenclature means that we have created a clear distinction that these are smaller deposit taking institutions with different qualifications that haven’t quit the requirements for commercial banks, they are operating at a lower level. They may have similarities, but they aren’t fully operating as banks, so this isn’t passing off.”

Medard Ssegoona (Busiro East) argued that MDIs operate under different legal regime, they have different qualifications, but Government’s only basis to have them is that some people won’t be persuaded to conduct business with MDIs.

“If you want to use the term banks, why don’t you want them to operate from the same legal regime as the Financial Institutions Act. And I don’t know if the Minister has heard the word passing off in intellectual property. How can we legislate passing off that these MDIs can go around behaving as if they are banks? In fact from legislation, our purpose is to keep the regimes different,” said Sseggona.

This prompted Speaker Among to request Minister Kasolo to consider withdrawing his motion seeking to reconsider this clause remarking, “That you shouldn’t lie people when you aren’t a Microfinance institution that I am also a bank, a bank remains a bank. It is a bank that should be taking deposits, chequing and even fixed deposits. My suggestion is to drop the re-commital.”

The Minister obliged and withdrew his proposal to have MDIs use the name banks in their business, prompting the Speaker to put a question for a vote on the bill, to which MPs voted in affirmative.

In the new law, MDIs will be allowed to conduct agency banking and issue insurance products like the case is with commercial banks, as well as Islamic banking.

Parliament also approved a proposal in The Micro-Finance Deposit Taking Institutions (Amendments) Bill, 2022 limiting the amount of shareholding in MDIs from 30% to 20% in order to align Uganda’s legislation with international best practices.

 

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