Microfinance Deposit Taking Institutions (MDIs)

Microfinance is often defined as financial services for poor and low-income clients offered by different types of service providers. The term is often used more narrowly to refer to loans and other services from providers that identify themselves as “microfinance institutions” (MFIs). These institutions commonly tend to use new methods developed over the last 30 years to deliver very small loans to unsalaried borrowers, taking little or no collateral.

These methods include group lending and liability, pre-loan savings requirements, gradually increasing loan sizes, and an implicit guarantee of ready access to future loans if present loans are repaid fully and promptly.

From a global perspective, microfinance organizations envision a world in which low-income households have permanent access to a range of high quality and affordable financial services offered by a range of retail providers to finance income-producing activities, build assets, stabilize consumption, and protect against risks.

The regulation and supervision of microfinance business by Bank of Uganda covers Tiers 1,2,3. The tiered approach gives room for smaller MFIs to continue to deliver their services with professionalism and grow while it enables strong MFIs to expand their services and offer diversified financial products.

The draft law titled the Micro Deposit takingInstitutions Bill 2002 has been presentedto parliament for consideration. Bank of Uganda extends its sincere appreciation to GTZ/Financial Sector Development Programme for the technical and financial support in the development of the MDI Bill.

Source: BOU, PIC Global