DEVELOPING STORY… Microfinance Support Center Bosses Face Arrest Over Billions in Lending Scandal

The troubles surrounding the Microfinance Support Centre (MSC), including under a key Government program meant to extend credit to rural communities, have escalated into a parliamentary accountability crisis after lawmakers moved to compel its top officials to appear before them.

The development follows a series of damning findings in the Auditor General’s 2025 report, which questioned how billions of shillings were lent, recovered and written off by the institution. Parliament’s Committee on Commissions, Statutory Authorities and State Enterprises (COSASE), chaired by Muwada Nkunyingi, has now resolved to issue arrest warrants for MSC officials who have repeatedly failed to honour invitations to appear before the committee.

Among those targeted are the Managing Director, accounting officer and other directors of the institution. The officials have been directed to appear before COSASE on August 28, 2026, as the committee investigates financial and management queries raised by the Auditor General.

The parliamentary action adds a new dimension to concerns surrounding MSC, the principal lending arm of Government’s Local Economic Growth Support Project (LEGS), a Sh545 billion programme being implemented through the Ministry of Local Government.

At the heart of the investigation is the handling of LEGS loans, with the Auditor General identifying UGX.2.725 billion that was disbursed to SACCOs that did not have valid operating licences from the Uganda Microfinance Regulatory Authority (UMRA).

The Auditor General found that the lending breached MSC’s own credit requirements, which make a valid UMRA licence a prerequisite for SACCOs seeking financing.

“Loans amounting to UGX.2.725Bn were paid out to various SACCOs, however, these SACCOs did not possess valid operating licenses from UMRA contrary to the credit policy of the company,” the report states.

The finding places questions of due diligence and internal controls at the centre of the parliamentary inquiry, particularly because LEGS was established to channel affordable financing into rural enterprises, agriculture, agro-processing, SACCOs and other community-based economic activities.

But the UGX.2.725 billion lending irregularity is only one part of the financial picture confronting MSC.

The Auditor General also reported that the institution wrote off UGX.62.53 billion in loans during the financial year. The write-offs contributed to a loss of UGX.22.67 billion and have intensified concerns about the sustainability of the institution’s credit operations.

“The Company made loan write-offs worth UGX.62.53Bn in respect of receivables, and this affected the reported performance for the year, contributing to a loss of UGX.22.67Bn,” the report states.

The institution’s difficulties appear particularly pronounced in recovering money that has already been written off.

MSC had projected to recover UGX.1.271 billion from written-off loans but collected only UGX.167 million, leaving a recovery gap of UGX.1.104 billion. The figures raise questions about the effectiveness of the mechanisms used to trace borrowers, enforce repayment and protect public resources.

Loan processing has also come under scrutiny.

According to the Auditor General, 17 loans valued at UGX.7.78 billion took longer than the prescribed processing period. In some cases, borrowers reportedly waited for more than a year before their applications were completed.

“17 loans worth UGX.7.78Bn disbursed during the year exceeded the maximum lead times prescribed and sometimes even took over a year to complete processing,” the report notes.

The delays could undermine the purpose of Government-backed rural financing, where borrowers often depend on timely access to capital to finance agricultural seasons, small businesses and other income-generating activities.

Another risk identified by the Auditor General concerns collateral. MSC reportedly relied on outdated valuations for securities backing loans worth UGX.6.526 billion, with some of the valuations dating back almost 10 years.

The problem becomes more serious when considered alongside the condition of MSC’s loan portfolio.

By June 2024, non-performing loans had reached 52 per cent of outstanding conventional loans, with UGX.44.7 billion classified as non-performing out of a total UGX.83 billion portfolio.

The institution has also struggled to fully utilise funds earmarked for lending.

Of the UGX.44.7 billion planned for disbursement, only UGX.23.4 billion was actually lent out. Under Emyooga, MSC spent UGX.120.996 billion from UGX.134.206 billion available, leaving UGX.13.210 billion unutilised.

Funding mobilisation has equally fallen below expectations. MSC raised UGX.969.37 billion against a target of UGX.1.792 trillion, creating a shortfall of UGX.823.48 billion.

Government funding was also below the appropriated amount, with MSC receiving UGX.133.341 billion against UGX.161.23 billion that had been provided for.

The Auditor General further identified weaknesses in the institution’s relationship with its clients, noting that MSC did not have an approved client service charter setting out the standards and protections expected by borrowers and stakeholders.

“The company does not have an approved client service charter that informs clients and stakeholders,” the report states.

Taken together, the findings paint a picture of an institution struggling with lending controls, loan recovery, financial performance, risk management and governance.

The implications extend beyond MSC itself because the institution is a major financing channel for LEGS, a Sh545 billion Government programme intended to reach almost 16 million Ugandans in 55 districts.

LEGS is designed to support rural economic activity through interventions in agriculture, water access, agro-processing, enterprise development and financial inclusion. Any prolonged weakness at MSC therefore risks slowing the flow of Government-backed credit to communities the programme was established to support.

The parliamentary summons now places MSC’s leadership under increased pressure to explain the findings.

The decision by COSASE to move toward arrest warrants follows what the committee describes as repeated failure by the officials to respond to its invitations. Their appearance on August 28 is expected to give lawmakers an opportunity to question the institution’s management over the Auditor General’s findings and establish responsibility for the reported weaknesses.

The scrutiny comes at a particularly sensitive time for MSC, with the institution facing questions over UGX.62.53 billion in loan write-offs, UGX.2.725 billion in loans issued to unlicensed SACCOs, UGX.6.526 billion backed by outdated collateral valuations and a conventional loan portfolio carrying a 52 per cent non-performing rate.

The committee’s intervention could therefore mark a significant escalation in efforts to establish how public money has been managed within Government’s rural financing programmes—and whether those responsible for the identified shortcomings will be held accountable.

Meanwhile, in a move by Muhoozi to crack down on exports organization PACEID, which is run by his brother-in-law Odrek, Rwabwogo’s Assistant has reportedly been arrested and thrown into a basement, as reported Here.