emmanuel tumusiime - mutebile : the national commemoration of the bank of uganda ’ s 50th anniversary opening remarks by mr emmanuel tumusiime - mutebile, governor of the bank of uganda, at the national commemoration of the bank of uganda ’ s 50th anniversary, kampala, 3 august 2016. * * * your excellency the president honourable ministers honourable members of parliament former governors of the bank of uganda governors and deputy governors of our fellow central banks in the region members of the diplomatic corps distinguished guests ladies and gentlemen, i would like to thank all of you for taking the time to be with us this morning, on the occasion of the bank of uganda ’ s 50th anniversary. i would especially like to express my gratitude to his excellency the president for gracing this occasion with his presence and showing his support for the bank of uganda. the history of the bank of uganda over the last fifty years reflects, in many respects, the history of independent uganda. like our country, the bank has experienced both good times and bad. during the 1970s and 1980s the bank suffered, along with the rest of ugandan society, from political and economic turbulence and the breakdown of governance. our first governor, dr. joseph mary mubiru, was abducted and murdered in 1971, a fate he shared with tens of thousands of his fellow citizens. we honour his memory every year with the joseph mubiru memorial lecture. during the years of turbulence, many staff of the bank of uganda strove bravely and tirelessly, against numerous obstacles, to keep the bank functioning properly for the welfare of all ugandans. the second half of the bank ’ s 50 years of existence has undoubtedly been more propitious than the first. over the course of the last three decades, the bank of uganda has played its part, first in putting the economy back on its feet and then supporting a sustained recovery of real growth in the economy. economic recovery would not have been possible, of course, without the restoration of peace and security in the country and the rebuilding of the institutions of government. i would like to highlight two areas where the bank of uganda has made a crucial contribution to the recovery of the ugandan economy. the first is the control of inflation, which began in the early 1990s. inflation was brought under control by a combination of fiscal and monetary reforms. the ministry of finance curbed domestic borrowing to finance the fiscal deficit and the bank of uganda controlled the growth of the money supply

for those that do so to be regulated by the bou, as a third tier of supervised financial institutions ( after banks and credit institutions ). this reform was motivated by the recognition that access to deposits is often equally as important as access to loans for low income customers and that microfinance institutions would be more sustainable over the long term if they could build a domestic deposit base, rather than having to rely on donor funds, to finance their lending. the growth of deposit taking microfinance in uganda over the last 10 years, since the microfinance deposit taking institutions act was passed in 2003, has not really met expectations. only a few microfinance institutions applied for licenses as tier iii microfinance deposit taking institutions ( mdis ). the total deposits of the mdis are less than one percent of the deposits of the commercial banks. at the same time a plethora of semi formal and informal financial institutions, which include nearly two thousand saccos, have grown up. all of these semi - formal and informal financial institutions, which are not subject to any prudential regulation, are collectively referred to as tier iv financial institutions. the growth of the unregulated financial sector has prompted the bou to rethink its strategy towards the tier iv financial institutions. it is not feasible to try and regulate all of the saccos and other tier iv institutions, because there are far too many of them to do this effectively. however, we believe that the larger saccos, those with hundreds or thousands of members, should be encouraged to graduate to become microfinance deposit taking institutions, licensed and regulated by the bou. this will enhance their financial stability and therefore help to protect their savings. we are currently in the process of preparing amendments to the mdi act to make it easier for the larger tier iv institutions to graduate to become licensed mdis, for example by removing the requirement that mdis should be limited liability companies, rather than mutual associations. in addition, the amendments to the mdi act will create an obligation on saccos which hold total savings of more than shs 1. 5 billion to convert to tier iii status. we anticipate that approximately 13 of the existing tier iv mfis and saccos will graduate to tier iii status. financial exclusion is not caused only by constraints on the supply side of the financial market. many people are discouraged from participation in formal sector financial markets because of a lack of knowledge, or misinformation, about