The rise and fall of Victoria Basin Savings and Microfinance Cooperative Trust Ltd (VBS)

The demise of Victoria Basin Savings and Microfinance Cooperative Trust Ltd was a big blow to so many people’s livelihood. Founded in 1990, this once vibrant entity started operating as a building society and then transformed into a SACCO. It became an immediate success.

However, changes in the legal status (from a building society into a SACCO) called for better ways of doing things especially an effective and independent Board of directors to provide effective oversight, risk management and going concern.

Unfortunately, its leadership and members did not respond to the new realities.  It was reported that one of its founding members and the then General Manager in collusion with others stole over Ugx. 750 million from the institution through insider lending, false reporting, theft and bad loans thereby shattering the dreams and livelihoods of over 12,000 depositors in Rakai.

The institution was also reported to have a debt of about Ugx. 1 billion; far in excess of its identifiable assets valued at less than Ugx. 200m. With timely on-sight supervision by the regulator, this kind of exposure would have been identified and possibly prevented. Any business that collapses leaves its stakeholders in a bad state.

Given the devastating impact of business failure, the need for sound governance is long overdue. Risk management is a key ingredient of sound governance practices.

Microfinance Institutions and SACCOs are classified as “Tier 4” financial institutions. Microfinance Institutions are regulated under (i) The Companies Act, 1961 now Companies Act 2012, which is more adequate especially the newly introduced Code on corporate governance under Table F, which provide for good corporate governance practices (as highlighted in Appendix 3); (ii) The NGO (Amendment) Act 2006.

SACCOS are regulated by the Uganda Microfinance Regulatory Authority (UMRA) under The Tier 4 Microfinance Institutions and Money Lenders (money lenders) Regulations, 2018. In May 2016, the Tier IV Microfinance Institutions Act was passed by the Parliament. A key provision of the Act was the establishment of the UMRA, which has the mandate to license, regulate and supervise all Tier IV financial institutions. UMRA was mandated to oversee the activities of SACCOs. However, many rural based SACCOS operate without valid licenses and UMRA should extend their arm to ensure all such savings and credit schemes are registered and regulated by the Authority.