How Safe Is Your Money If Your Bank Or Telecom Company Closed?

by Christopher Kiiza
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The closure of Teefe Bank, Greenland Bank, and Crane Bank had a significant impact on the Ugandan banking sector. They led to a loss of confidence in the banking sector and a decline in deposits as many depositors lost their money.

Depositors whose deposits were below three million shillings could recover their deposits through the Deposit Protection Fund (DPF) which was initiated in 1993 under the Bank of Uganda Statute before it (DPF) fell under the Financial Institutions Act 2004, and later, its establishment as a legal and independent entity with Board of Director, following the enactment of the Financial Institutions (Amendment) Act, 2016.

DPF acts as a deposit insurance scheme for customers depositing their money with commercial banks, credit institutions and microfinance credit making Institutions.

As per the law, depositors of the now defunct banks could recover their deposits if they (deposits) were 3 million shillings or less. This meant that customers with deposits exceeded 3 million shillings would only receive 3 million and incur a loss for the remaining amount.

In 2019, the Minister of Finance, Matia Kasaija announced that Government had increased the deposit insurance limit from three million to 10 million shillings.

This implies that if the bank closes, depositors can claim up to 10 million shillings of their deposits. Individuals with deposits less than 10 million will receive their entire amount, while those with deposits exceeding 10 million will receive only 10 million and bear the remaining loss.

This, however, raises questions regarding the fate of the depositors’ funds exceeding the 10 million limit safeguarded by the DPF if the bank closed.

The Deposit Protection Fund of Uganda protects customer deposits up to 10 million shillings (photo/ courtesy).

“Deposits above the insured limit will be paid by the liquidator after the assets of the closed contributing institution have been sold off. The amount paid out will depend on the recoveries made,” the DPF CEO, Julia Olima Oyet explains.

However, according to DPF, customer deposits are insured up to 10 million shillings only if the deposit taking institution is licensed by the Central Bank.

“A Contributing Institution is one, which is licensed by Bank of Uganda and periodically pays premiums to the DPF. These include Commercial banks, Credit Institutions and Microfinance Deposit-Taking Institutions. Depositors can know that their bank is protected by the DPF by looking out for the license that Bank of Uganda issued to their bank/Institution which is usually displayed in the banking hall,” says DPF.

Mobile Money

The emergence and widespread adoption of mobile money services in Uganda has undoubtedly captivated the attention of millions of Ugandan citizens. A huge number of Ugandans consider mobile money as not only a convenient but also the most effortless method for conducting financial transactions. 

Given the considerable proliferation of mobile money accounts among the Ugandan populace, there arises a pertinent question concerning the safety of their money particularly in the event of a telecom company discontinuing its operations within the country.

DPF CEO, Julia Olima Oyet

Oyet explains that mobile money is not protected by the DPF on account that it is not registered as DPF but adds that there is a mechanism to ensure that people who use mobile money are also paid and protected.

She says mobile money accounts are protected through a ‘ring fencing’ arrangement, following the passing of the National Payments Systems Act, 2020.

“After the passing of the National Payments Systems Act, mobile money accounts are now protected through a ‘ring fencing’ arrangement. This requires banks to invest the funds they hold in respect to mobile money in easily liquidated instruments like Government of Uganda treasury bills and bonds. In the event a telecom company closes, the mobile money account holders will be reimbursed in full using the proceeds from the treasury bills and bonds.”

Parliament enacted the National Payment Systems Act (NPSA) on July 29, 2020 which provides for the regulation of payment systems in Uganda.

The NPSA aims to; provide for the safety and efficiency of payment systems; prescribe the framework to govern the oversight and protection of payment systems; provide for financial collateral arrangements; regulate operators of payment systems; regulate payment service providers; regulate the issuance of electronic money; and provide for the oversight of payment instruments.

christopherkiiza2016@gmail.com

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