The sustainability of MFIs in Uganda: the need for consumer protection while balancing stakeholders' interests

Monique Cohen; Flavian Zeija

doi:10.3362/1755-1986.2013.023

The sustainability of MFIs in Uganda: the need for consumer protection while balancing stakeholders' interests

Microfinance has taken centre stage in the quest for poverty eradication in Uganda. Microfinance providers traverse the country, many with an objective of making a return on their investment, NGOs notwithstanding. The investment in the sector has grown to enormous proportions. This increased investment, however, has come with increased competition. Amid this increased investment and competition, consumers have taken the backseat to profit-making among many providers. Questionable means of recovery, high interest rates, non-transparent contracts, standard form contracts, cash collateral, fraud against clients, arrest, and committal to civil prison using ex parte judgments have become common phenomena. There is a need to change the legal framework to protect the consumer against the said abuses. Training of loans officers, increased monitoring, insurance, training microfinance clients, and formulating standard acceptable contracts with fair terms to be used by all providers seem to be the only solutions to consumer protection.

Accion (2011) ‘The Smart Campaign: Campaign mission & goals’ [online], www.smartcampaign.org/news-a-highlights/press-releases/36-2011 [accessed 2 August 2013]. www.smartcampaign.org/news-a-highlights/press-releases/36-2011

Association of Microfinance Institutions of Uganda (AMFIU) (2005) Regulating and Strengthening Tier 4 Microfinance Institutions in Uganda: Background Studies Compiled by Tier 4 Technical Working Subcommittee, Microfinance Forum Association of Microfinance Institutions of Uganda (AMFIU), Kampala: Fountain Publishers Ltd.

Barnes, S., Hersh, M., Stricker, M., and Takigawa, J. (2009) Measuring the Impact of Paralegal Programme on Women's Empowerment in Uganda, Kampala: Uganda Community Based Association for Child Welfare; and New York, NY: School of International and Public Affairs, Columbia University. <www.ssauganda.org/uploads/6UCOBAC_FINAL_REPORT.pdf≯ [accessed 10 November 2010]. www.ssauganda.org/uploads/6UCOBAC_FINAL_REPORT.pdf

Burand, D. (2008) ‘How does consumer protection relate to microcredit?’ [online] <http://microfinancegateway.com/resource_centres/reg_sup/consumer_protection?print=1≯ [accessed 5 November 2008]. http://microfinancegateway.com/resource_centres/reg_sup/consumer_protection?print=1

Micro and Small-Scale Enterprises Policy Unit (2002) ‘Survey of microfinance institutions in Uganda’, unpublished report, Kampala, Uganda: Ministry of Finance Planning and Economic Development.

MicroCapital Monitor (2007) ‘Police in Uganda investigate Front Page Micro Finance and three other microfinance firms’, Friday 21 September 2007 [online]. <http://www.microcapital.org/≯ [accessed 5 November 2008]. http://www.microcapital.org/

Milbrandt, J. (2008) ‘Microfinance scam in Uganda raises red flags’ in Microfinance Report [blog] <http://socialbusinessreport.typepad.com/microfinance_report/2008/01/microfinance-sc.html≯ (posted 4 January 2008) [accessed 2 August 2013]. http://socialbusinessreport.typepad.com/microfinance_report/2008/01/microfinance-sc.html

Nannyonjo, J. and Nsubuga, J. (2004) Recognising the Role of Micro Finance Institutions in Uganda, Bank of Uganda Working Paper WP/04/01, Kampala: Bank of Uganda.

Seibel, H.D. (2003) ‘Centenary Rural Development Bank, Uganda: a flagship of rural bank reform in Africa’, Small Enterprise Development 14 (3): 35–46 <http://dx.doi.org/10.3362/0957-1329.2003.031≯.

Uganda Bureau of Statistics (2010) Report on Census of Microfinance Institutions 2010, Kampala: Ministry of Finance and Economic Development.

UNDP (2007) Human Development Report 2007/08, New York: Palgrave MacMillan.