SACCOs in race against time for BoU licences

KAMPALA. Thousands of SACCO members could face uncertainty over the safety and future of their savings as only seven of an estimated 90 large savings and credit cooperatives have secured Bank of Uganda licences, with just over a month left before the September 30 deadline.

The slow progress has brought into sharp focus the readiness of Uganda’s cooperative movement for tighter regulation, with the central bank warning that SACCOs required to obtain licences could face penalties, including closure, if they fail to meet the deadline.

State Minister for Finance in charge of Microfinance, Shartsi Kutesa Musherure, said seven SACCOs had so far been fully licensed, while 15 applications were still being processed.

She said the government and Bank of Uganda estimate that about 90 SACCOs fall into the category that must come under direct central bank supervision.

The affected institutions are SACCOs with voluntary savings exceeding Shs1.5 billion and institutional capital of more than Shs500 million.

Voluntary savings are funds members deposit with a SACCO for safekeeping and other financial purposes, rather than savings made specifically to qualify for a loan.

The Bank of Uganda says the reforms are primarily intended to protect members whose money is held by large SACCOs by subjecting the institutions to stronger oversight.

Under the new framework, eligible SACCOs are moving from the Tier Four category of microfinance institutions, supervised by the Microfinance Regulation Department in the Ministry of Finance, to the direct supervisory mandate of the Bank of Uganda.

This will subject them to stricter requirements on governance, financial management and protection of members’ deposits.

The framework also provides for depositor protection through the Deposit Protection Fund and access to centralised credit referencing, bringing large SACCOs closer to other financial institutions supervised by the central bank.

The reforms, however, have exposed a growing debate within the cooperative movement over how far regulation should go without undermining the affordability and community-based character of SACCOs.

Aomu Mackay, the Bank of Uganda Director of Non-Bank Financial Institutions, says self-regulation within the cooperative movement is not enough to guarantee the safety of members’ money.

“If a large SACCO with billions in savings collapses, it can trigger widespread financial panic and destabilize the broader financial sector,” Mr Aomu says.

But cooperative leaders argue that direct central bank supervision could impose costly compliance requirements on SACCOs and eventually push up the cost of financial services for members.

All SACCOs, regardless of their size, are first incorporated as cooperatives by the Ministry of Trade, Industry and Cooperatives under the Cooperative Societies Act.

Cooperative leaders therefore argue that adding Bank of Uganda supervision creates another layer of regulation for institutions already subject to cooperative laws and oversight.

Ivan Asiimwe, the Executive Director of the Uganda Cooperative Alliance, says SACCOs could be forced to meet expensive compliance requirements designed for conventional financial institutions.

He says the additional costs could weaken the community-based model that has enabled SACCOs to serve people who may not easily access commercial banks.

“It also takes away the unique form of financial inclusion SACCOs provide as community-based initiatives and turns them into commercial and profit-oriented entities,” Mr Asiimwe says.

The Uganda Co-operative Savings and Credit Union has similarly opposed full central bank licensing of large SACCOs under a system modelled on the regulation of banks.

Its chief executive officer, Sylvester Ndiroramukama, has raised concerns about overlapping or potentially conflicting laws governing the different regulators and called for a single, tailored regulatory framework for SACCOs.

The government, however, maintains that the reforms are necessary to strengthen stability in the sector while protecting financial inclusion.

Ms Kutesa has pledged support for a regulatory approach that safeguards members’ money without stripping SACCOs of their cooperative character.

For some SACCOs that have already obtained licences, the reforms are proving to be less of a burden and more of an opportunity to strengthen operations and reassure members.

Mbarara-based EBO Financial SACCO, which became the first SACCO to obtain a Bank of Uganda licence in March, says central bank supervision has strengthened its governance and positioned it for expansion.

Julian Tumusiime, the SACCO’s executive director, says the decision to seek the licence was partly driven by the need to protect members’ deposits and strengthen confidence in the institution.

“We are the first SACCO in the history of Uganda to obtain this licence from the Bank of Uganda, and our reason for this is to ensure that we protect our members’ deposits, build their confidence and enable financial inclusion,” Ms Tumusiime says.

The licence has also enabled EBO Financial SACCO to expand to seven branches across districts in western Uganda.

The Bank of Uganda extended the licensing deadline from March 31 to September 30, 2026, to give eligible SACCOs more time to prepare the required documentation and allow the central bank to conduct stakeholder sensitisation.

During the extension, regulated financial service providers were advised to continue supporting eligible SACCOs to obtain the required licences.

The central bank also said regulated financial institutions should not deny financial services to eligible SACCOs before the September 30 deadline.

With only seven of the estimated 90 institutions licensed so far, the coming weeks will test whether the cooperative sector can complete the transition without disrupting services to millions of members who rely on SACCOs to save, borrow and build their livelihoods.