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
Julia Brüggen* February 2014
Financial services for all?Financial services for all?
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+)
Julia Brüggen* February 2014
24%
42%
33%
20%17%
0%
10%
20%
30%
40%
World High income Sub-Saharan
Africa
Kenya Rwanda Uganda Tanzania
Source: The Global Findex Database World Bank
Financial services for all?Financial services for all?
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+)
Julia Brüggen* February 2014
41%
13%
19%
30%
8%6%
3%0%
10%
20%
30%
World High income Sub-Saharan Africa
Kenya Rwanda Uganda Tanzania Sudan
Source: The Global Findex Database World Bank
Financial services for all?Financial services for all?
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
Julia Brüggen* February 2014
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 (?)
Julia Brüggen* February 2014
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
Julia Brüggen* February 2014
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)
Julia Brüggen* February 2014
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
Julia Brüggen* February 2014
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
Julia Brüggen* February 2014
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:
Julia Brüggen* February 2014
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
Julia Brüggen* February 2014
� 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‘
Julia Brüggen* February 2014
‚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
Julia Brüggen* February 2014
� By the end of 2013: 163,774 borrowers, 219b loans outstanding
(including Finance Trust)
� By the end of 2013: 138,623 borrowers, 160b loans outstanding
(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)
Julia Brüggen* February 2014
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:
Julia Brüggen* February 2014
⇒ 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
Julia Brüggen* February 2014
• 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"
Julia Brüggen* February 2014
• 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
Julia Brüggen* February 2014
Source: The Global Findex Database World Bank
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
Julia Brüggen* February 2014
• 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
Julia Brüggen* February 2014
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
Julia Brüggen* February 2014
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
Julia Brüggen* February 2014
• 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
Julia Brüggen* February 2014
⇒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
Julia Brüggen* February 2014
Products and servicesProducts and services
30%
40%
50%
60%
Saving characteristics
Uganda
female
Julia Brüggen* February 2014
0%
10%
20%
Banks Animals/Assets MFIs, SACCOs ROSCA, VSLAs Mobile Home
male
Source: Finscope 2013
Products and servicesProducts and services
⇒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
Julia Brüggen* February 2014
⇒ 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
Julia Brüggen* February 2014
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
Performance trendsPerformance trends
Outreach
Number of clients, borrowers, savers, branches
Julia Brüggen* February 2014
Average loans, savings
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
Julia Brüggen* February 2014
Average loans, savings
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)
Average loans, savings
MFIs: OutreachMFIs: Outreach
948,197
433,335
311,888
Industry OutreachIndustry OutreachIndustry OutreachIndustry OutreachDepositors Borrowers
Julia Brüggen* February 2014
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
MFIs: OutreachMFIs: Outreach
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
MFIs: OutreachMFIs: Outreach
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
Julia Brüggen* February 2014
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
Source: Finscope 2013
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
Julia Brüggen* February 2014
Average loans, savings
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
Performance trendsPerformance trends
Portfolio quality
Portfolio at Risk
Julia Brüggen* February 2014
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
Julia Brüggen* February 2014
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
Performance trends: PortfolioPerformance trends: Portfolio
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)
Julia Brüggen* February 2014
Loan Loss Ratio/Write-
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
Performance trends: PortfolioPerformance trends: Portfolio
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
Julia Brüggen* February 2014
Loan Loss Ratio/Write-
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
Performance trendsPerformance trends
Profitability and Sustainability
OSS
Julia Brüggen* February 2014
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
Julia Brüggen* February 2014
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
Performance trends: Profitability and SustainabilityPerformance trends: Profitability and Sustainability
Profitability and
Sustainability
OSS
� 86% of the institutions reported a positive return (after
taxes and grants) in 2012
� Unregulated institutions perform better under
profitability
Julia Brüggen* February 2014
Portfolio Yield
Retun on
Assets
Source: Kirya, 2013
Performance trends: Profitability and SustainabilityPerformance trends: Profitability and Sustainability
Profitability and
Sustainability
OSSEast
Central
SACCO RoA per Region
Julia Brüggen* February 2014
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
Performance trends: Profitability and SustainabilityPerformance trends: Profitability and Sustainability
Profitability and
Sustainability
OSSPortfolio 1b - 2b
Portfolio 2b-3b
Portfolio 3b-4b
Porfolio above 4b
SACCO Return on Assets per size of institutions
Julia Brüggen* February 2014
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
Performance trendsPerformance trends
Efficiency and Productivity
Cost of Funds
Operating Expense Ratio
Julia Brüggen* February 2014
Operating Expense Ratio
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
Julia Brüggen* February 2014
Operating Expense Ratio
Costs per loan
Portfolio as a percentage of
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
Performance trends: Efficiency and ProductivityPerformance trends: Efficiency and Productivity
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
Julia Brüggen* February 2014
Operating Expense Ratio
Costs per loan
Portfolio as a percentage of
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
Performance trends: Efficiency and ProductivityPerformance trends: Efficiency and Productivity
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%
Julia Brüggen* February 2014
Operating Expense Ratio
Costs per loan
Portfolio as a percentage of
assets
� Personnel expenses
49%
41%
55%
0%
10%
20%
30%
40%
50%
60%
MDIs SACCOs MFIs
Personnel expenses
Source: Kirya, 2013
Performance trends: Efficiency and ProductivityPerformance trends: Efficiency and Productivity
Efficiency and
Productivity
Cost of Funds
Julia Brüggen* February 2014
Operating Expense Ratio
Costs per loan
Portfolio as a percentage of
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
Julia Brüggen* February 2014
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
Julia Brüggen* February 2014
Opportunities Threats