Today we woke up to the news from the Central bank, Bank of Uganda (BOU) closing EFC Uganda Limited, revoking its license and ordered for the swift winding up of affairs. The reasons for its closure were not made clear to the public and here is why the microfinance institution was closed.
First and foremost, bank of Uganda confirmed that the Deposit Protection Fund of Uganda will work around the clock to ensure that, all depositors get notified on the arrangements that will be put in place to access all their deposits.
More so, the same institution notified that, all other creditors are requested to submit their claims to the office of the Director Financial Stability, Bank of Uganda within 30 days from the date of the statement.
Further more, all borrowers of the closed EFC Uganda Limited are requested to keep servicing their loans by making payments to Bank of Uganda offices and branches. And Bank of Uganda ended by assuring Ugandans that it will continue to protect the depositors’ interests so there is no cause of alarm that may trigger the fear of naks and other banking institutions.
Now, the reasons that were highlighted in the document as to why EFC was closed were; undercapitalization and poor corporate governance. It is true those were the reason, but still, there is more to know about this whole thing, and here it is.
First and foremost, EFC Uganda Limited reported it had an asset base of Ugx 112 billion in 2021. And that asset base had increased to 119 by 2023, this leaves a huge gap of determining whether it was closed for being undercapitalized.
But still, if we take a good look at how EFC Uganda Limited has been operating in giving out loan services, it is one of the main reasons why it was closed as it was found out that it had given out money that was not in balance with the actual money the institution had.
This putting the depositors’ money at risk, and Bank of Uganda was quick to react and protect Ugandans from a near calamity that was coming. Again, we are reliably informed that, the institution was on a brink of collapse as many people that took loans were not paying well, with more defaulters.
More to this, we have crude information from insiders that, the banking institution EFC Uganda Limited was being mismanaged from the top to the bottom. There were bad deals that were being done from the top management that would not allow it to stand.
For example, a source reveal that top bosses could get money in form of loans from the institution without following the right procedures. They would use it for their own things, and at the time of failing to pay back, the money would be attached to ghost debtors.
The last reason as to why EFC Uganda Limited collapsed is that, there was a lot of incompetence in the Human Resource and staffing at large, that was characterized of hiring those that are known to the people inside. This hindered the professional running of the business.
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The types of loans that were given at EFC included and were not limited to; School Improvement loan, Business loan, Home improvement loan, Women Market Trader loan. The loan payment methods had been extended to using Mobile Money.
That is how the institution collapsed and the only way to save it was the Bank of Uganda to come in and put it under liquidation. But now, we are left with one question; what can be done to save these microfinance and banking institutions as we have seen many exit the market after not spending long?
