Kampala — Finance Minister Matia Kasaija has said government has taken a strategic decision to increase the Deposit Protection Fund contributions from Shs3 million to Shs10m.
Speaking to journalists in Kampala yesterday, Mr Kasaija said, the revision was in view of the current economic dynamics, which had necessitated to increase the limit that was first established in 1997.
"The limit has, therefore, been revised to reflect the macroeconomic changes which we have witnessed over the past 20 years," he said, noting that the changes included substantial growth in deposits, inflation and foreign exchange movements, amongst others.
The Deposit Protection Fund is a fully-fledged entity and a separate unit from Bank of Uganda.
Its board, which is appointed by the Minister of Finance, provides oversight and operations of the Fund.
It is constituted of members who represent the interests of various stakeholders such as government through the Ministry of Finance, Bank of Uganda, and all contributing institutions.
Enhancing public trust
The Fund acts as a deposit insurance for customers of contributing financial institutions, which enhances public confidence in the financial sector.
Mr Kasaija said government, through the Fund, had ensured that depositors are paid their deposits in time, in the unlikely event that a contributing financial institution is closed.
The Deposit Protection Fund is a legal entity created under the Financial Institutions Act 2004.
Mr Kasaija also noted that the current role of the Fund was relatively narrow, which had necessitated government to put in place policies that would expand its mandate with the view of ensuring financial sector stability.
The Fund is financed by premiums levied on all deposit taking institutions, which are regulated by Bank of Uganda.
In order to ensure safety and liquidity, the collected premiums are invested in treasury instruments.
Ms Julia Olima Oyet, the Deposit Protection Fund chief executive officer, said the revision in the amount was an alignment that would ensure that the deposit insurance limit remains meaningful to depositors.
She noted that the Fund's total assets had increased from Shs460b in June 2017 to Shs538b in June 2018, reflecting an increase of Shs83b.
Ms Olima also explained that the contributing institutions will benefit from the increased deposit insurance limit given that deposit levels in the banking sector are envisaged to increase.
Currently, there are 34 contributing financial institutions, among them 24 commercial banks, five credit institutions and five micro finance deposit-taking institutions.
According to Mr Wilbrode Owor, the Uganda Bankers' Association executive director and a board member of the Deposit Protection Fund, banks are required to contribute 0.2 per cent annually.
This, he says, is levied against the size of the credit that particular institution has in its account. Data from the Central Bank indicate that there are about 11 million accounts in Uganda's banking industry including micro-depoist taking institutions. However, Mr Owor said: "Many [of them] have very little money in their accounts with 98 per cent having less than Shs3m."
However, he said, notwithstanding the amount of money, every depositor needs to be assured that they will be paid even when a financial institution collapses.