Will Uganda’s bank for cooperatives be a reality?

Lessons learnt from the defunct Coop Bank

Charles Kabuga, the former General Secretary, UCA, said cooperatives need to avoid past mistakes similar to those that were made during the existence of the defunct Cooperative Bank.

He pointed out inadequate capital for the bank since it was established in 1964, poor credit management, insider lending and poor repayment culture as some of the reasons that led to the collapse of Cooperative Bank as a result of becoming insolvent.

“There were no credit manuals; credit management was weak as there were no approvals from the Board, no application forms and no financial statements from borrowers, lack of analysis, follow-up and collection efforts,” he said adding, “As the loan portfolio grew in mid 1991 given the administered funds, the quality of loans did not improve with 75% of the loan portfolio being classified as Non-Performing Loans.”

What next?

Going forward, Stephen Mukitale, who previously chaired the Parliamentary Committee on National Economy and now sits on the National Budget Committee, said there’s need for cooperative societies to petition Parliament for the establishment of Cooperative Bank.

He suggests that the money paid to the Youth and Women through the Youth Livelihood Programme and Uganda Women Entrepreneurship Programme can instead, be directed towards establishment of the bank for the benefit of the wider population.

Muhumuza suggests the cooperative societies need to nurture and grow the asset base of the Uganda Central Cooperative Financial Services Ltd (UCCFS) and transform it into a bank rather than starting a new entity.

“Let’s find the capital that UCCFS will be required to operate smoothly, because it is already authorized to work anyway,” he said, “Then as it grows, we shall have a clear evidence, and we can apply to BoU to become a bank. We already know what the central bank needs.”

Started in 2008 as a financial services provider for savings and credit cooperative societies, UCCFS has nearly 400 cooperatives countrywide, with a Shs5bn capital.

Muhumuza said the proposed Cooperative Bank should also not compete with the UDB; instead should form a collaboration to share risks and facilities.