Following Bank of Uganda’s decision to revoke EFC Uganda Limited’s license and subsequently placing the entity under liquidation, the Deposit Protection Fund (DPF) has swung into action, moving to rollout payment of the protected deposits to users.
EFC Uganda, a microfinance deposit-taking institution, was last Friday directed to shut down following the entity’s “failure to resolve its significant undercapitalization and poor corporate governance” which Bank of Uganda, the regulator, said is detrimental to the interests of its depositors.
As per its mandate, DPF on Wednesday announced that it will be rolling out the payout of up to 10 million shillings starting Monday January 29th, 2024.
Speaking to the press at DPF offices in Nakasero, DPF CEO Dr. Julia Clare Olima emphasized that as a requirement to access the money, depositors will present their valid National Identity Card and a verified phone number as the law necessitates.
“We have always encouraged depositors to update their records of the National IDs and phone numbers. As I have indicated, to get paid, the depositor must present their original ID. This is important because as citizens, we are identified by our National Identification Numbers. I urge Ugandans who had deposited in EFC and do not have IDs to secure them before the payout period ends,” Dr. Olima said.
She noted, however, that according to their records, most of the depositors appear to have the IDs.
For non-Ugandans claiming the funds, a passport is required while the refugees will be asked to present their Refugee Numbers to be able to get their money.
Depositors who had joint accounts at EFC will present valid National IDs of the account holders while companies are required to present copies of registration, a registered resolution indicating who should be paid and valid National IDs of the beneficiaries.
In accordance with Sections 111A and 111C (5) of the Financial Institutions Act 2004 as amended, the Deposit Protection Fund (DPF) will pay the protected deposits while BoU as the statutory liquidator of EFC Uganda Limited, will pay the unprotected deposits.
The payout is to be made in not more than 10 days from the day of closure.
Mode of payment
- According to the Fund, depositors with less than UGX 100,000, who constitute 68% of all EFC depositors, will be paid through Mobile Money with effect from Monday January 29, 2024 after
verification of their National Identification Numbers (NIN) and mobile phone numbers. - Depositors with more than UGX 100,000 but less than UGX 10,000,000, who constitute 30% of the depositors at EFC, will be paid through Agent Banks. These payments will be done starting on Monday February 5, 2024.
“All depositors who will be paid by the Agent Bank are required to lodge in a claim for payment by filling out the Depositor Claim Form that shall be made available at the Agent Bank at no cost,” DPF stated. - Depositors with balances above UGX10,000,000 who are a meagre 2%, will be paid through alternative bank accounts.
“BoU will inform depositors with more than UGX 10,000,000 of the arrangements for paying their deposits within fourteen (14) days from the date of this notice,” Dr. Olima noted in her statement.
Limited Deposit Insurance Coverage
The Deposit Protection Fund pays depositors, in cases of a bank closure such as the EFC situation, up to 10 million shillings only. This means that depositors with balances exceeding UGX 10 million at the time of closure, lie in the “unprotected deposits” category and are therefore paid the 10 million and the rest is handled by the Bank of Uganda.
Hence, 2% of EFC depositors will not receive their full payment from DPF.
Asked if the Fund might consider increasing the deposit insurance coverage limit, Dr. Olima noted that the 10 million covers 98% of all depositors across the various financial institutions adding that “as per the international best principles of deposit insurance, the 10 million is adequate.”
“Deposit Insurance limits cannot be raised too high because the you expose the whole sector to moral hazard where the depositors will put their money in any institution without thinking about the risks they are taking. Also, on the side of the managers, if the deposit insurance limit is too high, they will take a lot of risks knowing that even if the bank closes, the government would pay the depositors. Our principle aims at covering the majority small and unsophisticated depositors,” she explained.