The Financial Sector in Uganda

Uganda’s Financial Sector Environment

Uganda’s financial system is composed of formal, semiformal and informal institutions.  The formal institutions include banks, Microfinance Deposit-taking institutions, Credit Institutions, Insurance companies, Development Banks, Pension Funds and Capital Markets.  The semi informal institutions include Savings and Credit Cooperative Associations (SACCO) and other Microfinance institutions, whereas the informal ones are mostly village savings and loans associations.  Formal institutions are less prominent in rural areas than urban areas and they only serve 14% of the rural population. Informal institutions play an important role in the rural service provisions and serve approximately 12% of the rural population.

These numbers indicate that Uganda’s financial system is still quite shallow. With regard to access to finance, 62% of Uganda’s population has no access whatsoever to financial services.  The number of the population holding accounts in banks is 4 million or 33% of the 12 million who are bankable.  The savings to GDP ratio is still low at 16%.  In addition, financial intermediation is poor as indicated by the stock of private sector credit of 11.8% of GDP.


By early the 1990s, the banking sector was comprised mainly of four foreign banks (Standard Chartered, Standard Bank, Barclays and Baroda), and the two large indigenous banks (UCB and Co-op) that controlled 70 percent of the banking assets and liabilities but were insolvent. By the end of 2005, the system had substantially grown and was made up of a formal and an informal sector. The number of commercial banks increased to 20 in 1996, when a moratorium on banking licences was imposed and after the closure of some banks and consolidation, fell to 15. The formal sector encompassing the Central bank, 15 commercial banks (Tier 1), 8 credit institutions (Tier 2), and since 2004 microfinance deposit-taking institutions (Tier 3), National Social Security Fund (NSSF), a Postbank, 18 insurance companies, 82 Forex bureaux, 3 development institutions, and a stock exchange. The informal sector comprises of a wide range of moneylenders SACCO, Rotating Savings and Credit Association (ROSCAs) and the Microfinance Institutions (MFIs). In terms of the informal financial institutions, there has been a considerable progress in expanding the outreach of these institutions and improving the access to financial services especially by the rural population.

However, despite this proliferation, the building societies that had mushroomed in 1980s and early 1990s have long disappeared from the scene. While Uganda has a well-developed and diversified microfinance industry; it nonetheless suffers low capitalization and legal restrictions. These handicaps limit the industry’s ability to meet the development finance needs of the rural and micro enterprise sector that forms the bulk of Uganda’s productive enterprises and account for more than 50 percent of GDP.  Thus, microfinance cannot overcome the chronic shortage of larger and longer-term loans to small scale enterprises, especially in the commercial farming sector.

On the other hand, Uganda’s capital market is not developed enough to play any significant role in furnishing long-term funds to the economy. Similarly, the pension system is very weak where mobilizing long-term funding is concerned. Moreover, the expansion of unregulated SACCOs, ROSCAs and MFIs cause a concern regarding the safety of small-balance deposits which they illegally hold. Some of these institutions use subsidized funds from the government supported Microfinance Support Centre which might introduce distortions by weakening credit culture and thus undermine the viability of these institutions.

Overall, though financial depth remains low, signs of recovery are unmistakable and encouraging. Financial intermediation is low, playing a limited role in the provision of funds for development finance, and dominated by commercial banks. Basic indicators of financial development, such as the broad-money/GDP and currency-deposit ratios, suggest that the financial sector is still underdeveloped.  For example, Uganda’s financial sector had total assets equivalent to approximately 35 percent  of GDP in 2005. In addition, the system is dominated by the commercial banking sector, which by 2005 accounted for almost 80 percent of total sector assets. Other financial intermediaries are limited in number, small in size and relatively ineffective. Consequently, only a limited number of financial instruments are available for savings mobilisation, liquidity management and portfolio diversification.

For More Information See These Resourceful Websites:

Bank of Uganda 

Uganda Bureau of Statistics

Government of Uganda

Ministry of Finance

Uganda Securities Exchange

Parliament of the Republic of Uganda 

CMA Capital Markets Authority

Click Here to download the Uganda Financial Institutions Act 2004