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MICRO FINANCE DEPOSIT-TAKING INSTITUTIONS ACT, 2003.

ARRANGEMENT OF SECTIONS

Section

PART I
PRELIMINARY.

   1.   Short title.

   2.   Interpretation.

   3.   Application of Act.

PART II
LICENCING.

   4.   Provisions relating to the carrying out of microfinance business.

   5.   Use of word "bank", "banker", "MDI" or "Micro Finance Deposit-Taking Institution".

   6.   Examination of persons suspected of transacting microfinance business and access to premises.

   7.   Application for licence.

   8.   Licencing fees.

   9.   Expiry of licence.

   10.   Prohibition on transfer or assignment of licence.

   11.   Amendment and restriction of licence.

   12.   Revocation of licence.

   13.   Effect of revocation of licence.

   14.   Publication of list of companies.

   15.   Minimum capital requirements.

   16.   Ongoing capital adequacy requirements.

   17.   Minimum liquid assets.

PART III
RESTRICTIONS ON CERTAIN TRANSACTIONS AND DEALINGS BY MICRO FINANCE DEPOSIT-TAKING INSTITUTIONS.

   18.   Credit facilities and limits.

   19.   Prohibited transactions.

   20.   Payment of dividends, etc, by institutions.

PART IV
OWNERSHIP AND CORPORATE GOVERNANCE.

   21.   Ownership and transfer of shares.

   22.   Board of directors.

   23.   Disqualified persons.

   24.   Responsibilities of the board.

   25.   Duties of directors.

   26.   Meetings of the board.

   27.   Finance manager.

   28.   Internal auditor.

   29.   External auditors.

   30.   Appointment of external auditor.

   31.   Qualification of external auditors.

   32.   No change of external auditor without approval of Central Bank.

   33.   Insurance cover by external auditors.

   34.   Time limit for external auditor.

   35.   Duties of the external auditor.

   36.   Additional duties of the external auditor.

   37.   Information by external auditor to Central Bank.

   38.   Powers of external auditor.

   39.   No civil liability.

   40.   Audit report.

   41.   Qualified audit report.

   42.   Rejection of audit report.

   43.   Requirements on provisions.

   44.   Meetings with auditors.

   45.   Indemnity.

   46.   Credit reference bureau.

   47.   Corporate records.

   48.   Form of corporate records, etc.

   49.   Submission of audited accounts.

   50.   Financial year.

   51.   Disclosure of violations in audited financial statements.

   52.   Publication of audited accounts.

   53.   Rectification of audited accounts.

   54.   Protection and retention of records.

PART V
SUPERVISION OF MICRO FINANCE DEPOSIT-TAKING INSTITUTIONS.

   55.   Responsibilities of the Central Bank.

   56.   Powers of supervisors.

   57.   Periodic reports.

   58.   Corrective actions.

   59.   Prompt mandatory corrective actions.

   60.   Management take-over.

   61.   Powers of Central Bank on taking over management.

   62.   Duties of the Central Bank on a management take over of an institution.

   63.   Powers and duties of a statutory manager.

   64.   Management by Central Bank not relief from contractual obligations.

   65.   Costs of management.

   66.   Offences.

PART VI
RECEIVERSHIP.

   67.   Placing of institution under receivership.

   68.   Options available to receiver.

   69.   Effect of placement of institution under receivership.

PART VII
LIQUIDATION.

   70.   Bar on liquidation or winding up proceedings.

   71.   Voluntary liquidation.

   72.   Liquidation by the Central Bank.

   73.   Duties of liquidator.

   74.   Powers of liquidator.

   75.   Stay of proceedings.

   76.   Reliance on statements.

   77.   Examination of others, etc.

   78.   Costs of liquidation.

   79.   Release of liquidator.

PART VIII
MISCELLANEOUS.

   80.   MDI Deposit Protection Fund.

   81.   Branches.

   82.   Freezing of accounts.

   83.   Unclaimed balances.

   84.   Officers deemed public officers.

   85.   Obligations under the Companies Act, etc.

   86.   Protection of Central Bank.

   87.   Deposit advertisements.

   88.   Offences.

   89.   Regulations, notices and directions.

   90.   Amendment of Schedules.

   91.   Transitional provisions.

      First Schedule   Currency point.

      Second Schedule   Criteria for determining whether a person is a fit and proper person to manage, control, become a director or substantial shareholder in an institution.

MICRO FINANCE DEPOSIT-TAKING INSTITUTIONS ACT, 2003.

Commencement: 1 July, 2003.

   An Act to provide for the licencing, regulation and supervision of microfinance business in Uganda and to provide for matters connected with or incidental to the foregoing.

PART I
PRELIMINARY.

1.   Short title.

   This Act may be cited as the Micro Finance Deposit-Taking Institutions Act, 2003.

2.   Interpretation.

   In this Act, unless the context otherwise requires—

   "affiliate" in respect of any institution, means any entity, corporate or unincorporate, where five percent or more of any class of its voting shares or other voting participation is directly or indirectly owned or controlled by the institution, or is held by it with power to vote;

   "associate"—

   (a)   in relation to a natural person, means—

      (i)   a close relative of that person; or

      (ii)   any person who has entered into an agreement or arrangement with that person, relating to the acquisition, holding or disposal of, or the exercising of voting rights in respect of, shares in the controlling company in question;

      (iii)   any company of which that person is a director;

      (iv)   any person who is an employee or partner of that person.

   (b)   in relation to a person not being a natural person—

      (i)   being a company, means any subsidiary or holding company of that company, any other subsidiary of that holding company and any other company of which that holding company is a subsidiary;

      (ii)   not being a company to which subparagraph (i) applies, means another non natural person which would have been a subsidiary of the first mentioned non natural person—

   (aa)   had such first mentioned non natural person been a company; or

   (bb)   where that other non natural person is not a company, had the first mentioned non natural person and that other non natural person each been a company;

      (iii)   means any person in accordance with whose directions or instructions the board of directors of or, where such non natural person is not a company, the governing body is that non natural person is accustomed to act; and

   (c)   in relation to any person whether natural or not natural—

      (i)   means any non natural person of which the board of directors or where the non natural person is not a company, of which the governing body is accustomed to act in accordance with the directions or instructions of the person first mentioned in this paragraph; and

      (ii)   includes any trust controlled or administered by that person.

   "bank" means any company licenced under the Financial Institutions Statute to carry on banking business as its principal business and includes all branches and offices of that company in Uganda;

   "banking business" has the meaning assigned to it in the Financial Institutions Statute;

   "cease and desist order" means an order issued by the Central Bank to an institution to refrain from doing anything that is unsafe or that may prejudice depositor's interests;

   "Credit Reference Bureau" means the Credit Reference Bureau referred to section 46 of this Act;

   "Central Bank" means the Bank of Uganda established under the Bank of Uganda Statute;

   "close relative", in relation to any person, means—

   (a)   his or her spouse;

   (b)   his or her child, stepchild, parent, ward of parent or stepparent;

   (c)   the spouse of any person mentioned in paragraph (b);

   "collateral substitutes" means collateral not ordinarily used as security in conventional banking;

   "company" means a company limited by shares and having a share capital;

   "compulsory savings" means funds that must be contributed to by borrowers of an institution as a condition for receiving a loan either as a percentage of the loan or as a nominal amount;

   "control" means the relationship between the parent undertaking and a subsidiary undertaking or similar relations between an individual and an undertaking or the power to determine the financial and operational policy of an institution under its charter or an agreement, or direct or indirect influence by a person over decision making and the management of an institution;

   "core capital" means shareholders' equity in the form of issued and fully paid up shares including retained reserves approved by the Central Bank;

   "corporate governance" has the meaning assigned to it in subsection (2) of section 24 of this Act;

   "credit facilities" means—

   (a)   the granting by an institution of advances, loans and other facilities by which a customer of the institution has access to funds or financial guarantees; or

   (b)   the incurring by the institution of other liabilities on behalf of a customer;

   "currency point" means the value of a currency point specified in the First Schedule to this Act;

   "deposit" means a sum of money received or paid on terms under which it will be repaid, with or without interest or a premium, and either on demand or at a time or in circumstances agreed by or on behalf of the person making the payment and the person receiving it; except that the following shall not qualify as deposits for the purposes of this Act—

   (a)   any sum of money which is paid by way of advance or part payment under a contract for the sale, hire or other provision of property or services, where the sum is repayable only if the property or services is not or are not in fact sold, hired or otherwise provided;

   (b)   a sum of money which is paid by way of security for performing a contract;

   (c)   a sum of money which is paid as security for a loan granted or promised at a future date to be granted to the person making the payment, except that such sum or interest on it shall not be on lent;

   "executive officer" in relation to any institution, includes any general manager or deputy manager of the institution;

   "Gazette" means the official Uganda Gazette;

   "group guarantee" means a guarantee mechanism by which a group of borrowers undertake to be liable jointly or severally to a loan of any one of them.

   "home country regulator" means the supervisory authority of the home country where the head office of the parent financial institution is based;

   "institution" means a micro finance deposit-taking institution;

   "liquid assets" has the meaning assigned to it in subsection (2) of section 17 of this Act;

   "licence" means a licence granted under section 7 of this Act;

   "loan insurance fund" means an earmarked fund contributed to by group members of an institution to act as collateral for loans given to individual members of the institution;

   "MDI" means micro finance deposit-taking institution;

   "MDI Deposit Protection Fund" means the Deposit Insurance Fund established under section 80 of this Act;

   "manager" means an officer of a financial institution empowered to control, direct and influence decision making of the institution;

   "microfinance business" means the business carried on as a principal business of—

   (a)   acceptance of deposits;

   (b)   employing such deposits wholly or partly by lending or extending credit for the account and at the risk of the person accepting those deposits, including the provision of short term loans to small or micro enterprises and low income households, usually characterised by the use of collateral substitutes, such as group guarantees or compulsory savings;

   (c)   transacting such other activities as may, by regulations under section 89 of this Act, be prescribed by the Central Bank;

   "micro finance deposit-taking institution" means a company licenced to carry on, conduct, engage in or transact in microfinance business in Uganda;

   "Minister" means the Minister responsible for finance;

   "non-performing loan" means a loan or asset whose principal or interest has been due and unpaid for 90 days or more, or where its principal or interest payments, overdue by 90 days or more have been capitalised;

   "person" means any individual, company, partnership, fund, foundation or enterprise wherever located or incorporated;

   "reputable financial institution" means a financial institution licenced to conduct banking or other financial institution business under the laws of any state, country or territory other than Uganda and which meets such other criteria as may be prescribed by the Central Bank;

   "reputable public company" means a company that is financially strong, whose ownership is widely distributed, is of good public standing and meets such other criteria as may be prescribed by the Central Bank;

   "resident" means—

   (a)   an individual who is ordinarily resident in Uganda for one year or more;

   (b)   the Government of Uganda and its diplomatic representations located outside of Uganda;

   (c)   a company, firm or enterprise whose principal place of business or centre of control and management is located in Uganda;

   (d)   a corporation, firm or enterprise incorporated or formed under the laws of Uganda;

   (e)   a branch located within Uganda of a company, firm and other enterprise whose principal place of business is located outside of Uganda,

except that "resident" does not include a foreign diplomatic representation or an accredited official of that representation located within Uganda, or office of an organisation established by international treaty located within Uganda, or a branch located outside Uganda of a company, firm, or enterprise whose principal place of business is located in Uganda;

   "short-term loan" means a loan, the period for the repayment of which does not exceed two years;

   "significantly undercapitalised" has the meaning assigned to it in subsection (8) of section 59 of this Act;

   "small loan" means a loan which is less than one percent of the core capital prescribed in this Act for individual borrowers and five percent of the core capital prescribed in this Act for group borrowers;

   "time deposits" means deposits repayable after a fixed period or after notice and includes savings deposits.

3.   Application of Act.

   This Act shall apply only to micro finance deposit-taking institutions.

PART II
LICENCING.

4.   Provisions relating to the carrying out of microfinance business.

   (1) No microfinance business shall be transacted in Uganda except by a company, which is in possession of a valid licence granted by the Central Bank authorising it to conduct microfinance business in Uganda.

   (2) Any person who contravenes subsection (1) commits an offence and is liable on conviction to a fine not exceeding 250 currency points or imprisonment not exceeding three years or both; and in the case of a continuing offence to a further fine not exceeding 50 currency points for each day during which the offence continues after conviction.

   (3) The Central Bank shall upon a person being convicted under subsection (2) issue a cease and desist order to that person, prohibiting that person from conducting microfinance business in Uganda.

5.   Use of word "bank", "banker", "MDI" or "Micro Finance Deposit-Taking Institution".

   (1) Except as otherwise provided by any other Act, the term " bank" or "banker" or any of their derivatives or a term in which the word "bank" or "banker" appears, in any language, may be used in the firm name, title or as an addition to it or in any representation in a bill head, letter paper, notice, advertisement or description of the object of the business only by a bank licenced by the Central Bank to conduct banking business in Uganda.

   (2) A micro finance deposit-taking institution licenced under this Act shall use the word "MDI" after its name.

   (3) Except where authorised under this Act or any other Act, no person shall use the word "MDI" or the words a "micro finance deposit-taking institution" in any of the circumstances specified in subsection (1) of this section.

   (4) Any person who contravenes subsection (1), (2) or (3) commits an offence and is liable on conviction to a fine not exceeding 50 currency points or imprisonment not exceeding one year or both, and, in the case of a continuing offence, to a further fine not exceeding 10 currency points for each day during which the offence continues after conviction.

6.   Examination of persons suspected of transacting microfinance business and access to premises.

   (1) Whenever the Central Bank has reason to believe that a person is transacting microfinance business in Uganda without a licence, the Central bank shall, at all times—

   (a)   have full and free access to the premises at which that person is suspected of transacting microfinance business without a licence or at which that person may have books, accounts and records; and

   (b)   have the power to examine, copy or take possession of the books, accounts and records of that person in order to ascertain whether or not that person has contravened, or is contravening any of the provisions of this Act.

   (2) Any refusal to allow full and free access to the premises referred to in subsection (1) or to submit any books, accounts or records to which subsection (1) applies shall be prima facie evidence of the fact of operation without a licence.

7.   Application for licence.

   (1) A company which desires authority to carry on microfinance business in Uganda shall apply in writing to the Central Bank for a licence under this section and shall supply—

   (a)   a copy of the memorandum of association and articles of association or other instrument under which the company is incorporated;

   (b)   verified official notification of the company's registered place of business;

   (c)   the prospective place of operation, indicating that of the head office and branches;

   (d)   biographical data on each of the founders, proposed directors and officers;

   (e)   the information which is necessary for assessing the trustworthiness of the applicant;

   (f)   the information which is necessary for assessing the professional qualifications, as required for managing the institution and of the proprietors;

   (g)   a copy of the latest balance sheet of the company or such other suitable evidence of the resources needed for business operations;

   (h)   a feasibility study of the company showing the nature of the planned business, the organisational structure and the planned internal monitoring procedures of the company and covering inter alia the following aspects—

      (i)   mission statement and overall goals;

      (ii)   market research;

      (iii)   ownership and governance;

      (iv)   management;

      (v)   financial analysis;

      (vi)   business strategy.

   (2) Any person who knowingly or recklessly furnishes any document or information which is false or misleading in a material particular in connection with an application for a licence under subsection (1) commits an offence and is liable on conviction to a fine not exceeding 100 currency points or imprisonment not exceeding two years or both.

   (3) Upon receiving an application under subsection (1), the Central Bank shall within six months consider the application and may, subject to section 15, grant a licence, with or without conditions or refuse to grant a licence.

   (4) Before issuing a licence under this Act, the Central Bank shall take into account all the matters it considers relevant to the application and, without limiting the generality of the foregoing, the Central Bank shall have particular regard to—

   (a)   whether the institution will be operated responsibly by persons who are fit and proper for involvement in microfinance business in accordance with the criteria specified in the Second Schedule to this Act;

   (b)   the business record and experience of the applicant or applicants;

   (c)   the nature and sufficiency of the financial resources of the applicant as a source of continuing financial support for the institution;

   (d)   the soundness and feasibility of the plans submitted by the applicant or applicants for the future conduct and development of the business of the institution;

   (e)   whether public interest will be served by the granting of the licence.

   (5) Any person who fails to comply with any of the conditions of its licence commits an offence and is liable on conviction to a fine not exceeding 50 currency points and, in the case of a continuing offence, to a further fine not exceeding 10 currency points for each day during which the offence continues after conviction.

8.   Licencing fees.

   (1) Every institution shall pay an annual licence fee prescribed by the Central Bank by notice published in the Gazette.

   (2) The manner of payment of the licence fee shall be as specified by the Central Bank.

9.   Expiry of licence.

   A licence issued under section 7 shall expire if business is not commenced within one year from the date it is granted.

10.   Prohibition on transfer or assignment of licence.

   A licence issued under this Act shall not be transferable or assignable.

11.   Amendment and restriction of licence.

   (1) Subject to this section, the Central Bank may at any time amend or restrict the licence of an institution—

   (a)   to correct any error;

   (b)   if the institution requests the amendment;

   (c)   if the Central Bank considers the amendment necessary to reflect the true nature of the business which the institution is conducting;

   (d)   if it is desirable for the protection of the depositors or potential depositors of that institution; or

   (e)   if for any other reason the Central Bank considers the amendment necessary or desirable in the public interest.

   (2) Before amending the licence of an institution in accordance with subsection (1), other than at the request of the institution, the Central Bank shall notify the institution, in writing, of the nature of the amendment it proposes to make and of its reasons for making the amendment and shall give the institution an opportunity to make representations in that matter.

   (3) If the Central Bank refuses to make an amendment in accordance with paragraph (b) of subsection (1) of this section, it shall, within a reasonable time after reaching its decision, notify the institution, in writing, of its decision and the reasons for it.

12.   Revocation of licence.

   (1) The Central Bank may by notice in writing, revoke a licence issued under this Act if it is satisfied that the licencee at any time—

   (a)   has not commenced or has ceased to carry on business;

   (b)   has furnished any information or document to the Central Bank in connection with its application for a licence which is false or misleading in a material particular;

   (c)   has been found by the Central Bank to be insolvent or unable to pay its liabilities as they mature;

   (d)   has gone into liquidation;

   (e)   has been wound up;

   (f)   has been dissolved;

   (g)   is in the opinion of the Central Bank conducting business in a manner detrimental to the interests of its depositors or customers;

   (h)   has persistently in the view of the Central Bank contravened the provisions of this Act;

   (i)   has engaged in deception of the Central Bank or the general public in respect of its financial condition, ownership, management, operations or other facts material to its business;

   (j)   has without the consent of the Central Bank been amalgamated with another company or has sold or otherwise transferred its assets and liabilities to another company.

   (k)   has failed to comply with any conditions specified in its licence;

   (l)   has transferred or assigned its licence.

   (2) Before varying or revoking a licence, the Central Bank shall give a holder of the licence an opportunity to submit reasons why the conditions of its licence should not be so varied or revoked.

13.   Effect of revocation of licence.

   Where the Central Bank revokes a licence under section 12—

   (a)   the Central Bank shall cause notice of the revocation to be published in the Gazette; and

   (b)   the affected licensee shall, as from the date of the notice, cease to transact microfinance business in Uganda except as may be approved by the Central Bank for the purpose of winding up its business.

14.   Publication of list of companies.

   The Central Bank shall once in every year publish in a newspaper circulating in the whole of Uganda, the names of all companies authorised to conduct microfinance business in Uganda.

15.   Minimum capital requirements.

   (1) Subject to this Act, a company shall not be granted or hold a licence unless it has a minimum paid up capital of 25,000 currency points invested in such liquid assets in Uganda as the Central Bank may approve.

   (2) The minimum capital funds of a company referred to in subsection (1) unimpaired by losses shall at all times not be less than 25,000 currency points.

   (3) The Minister may from time to time by statutory instrument, vary the minimum paid up capital prescribed by subsection (1) with the approval of Parliament.

16.   Ongoing capital adequacy

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