INVESTIGATION: NSSF Board Recommended 13.5% Interest Rate But Kasaija Raised it to 15%

National Social Security Fund (NSSF) savers should prepare for tough times ahead after it emerged on Friday that Finance Minister Matia Kasaija’s decision to declare a higher interest rate of 15 percent was against the board’s recommendation of 13.5 percent.

A one-month investigation conducted by ChimpReports indicates the NSSF board meeting held on August 15, 2018 decided that members receive an interest rate of 13.5 percent on their savings.

This was documented in minutes of the board meeting that sat at Workers’ House, which this website has seen.

On August 20, 2018, the chairman board of directors Patrick Byabakama Kaberenge wrote to Kasaija: “After a number of considerations including the promise made to members providing them with interest rate of 2 percent above 10-year inflation, impact of the interest rate declared on the Fund’s financial position, and expectations from members, we recommend a rate of 13.5 percent.”

Kaberenge told Kasaija the purpose of his letter was to “request you to consider declaring an interest rate of 13.5 percent to be paid to contributing members for the financial year 2017/18 as required by section 35 (2) of the NSSF Act.”

Kaberenge’s letter to Minister Kasaija

According to quoted law, “interest at the rate declared by the Minister calculated on the balance standing to the credit of the account of the member of the Fund on the first day of the financial year shall be added to the account of every member of the Fund for each financial year throughout which it has been open if no benefit has been paid out.”

The board considered several scenarios before reaching a conclusion on the interest rate.

Official correspondences show NSSF board informed Kasaija that when the Fund “declared a rate of 14 percent in 2008, the Fund went into a deficit position of over Shs 50bn. By 2009, the accumulated deficit stood at more than Shs 43bn; a precarious financial position.”


He was further informed that “it is only in 2012 that the Fund was able to turn the accumulated deficit into an accumulated surplus.”

This, officials told us, was to alert Kasaija on the dangers of declaring a higher interest rate.

Secondly, reasoned the board, it was critical that the rate to be declared has to ensure that a surplus position is maintained.

As of June 30, 2018, NSSF had accumulated surplus of Shs 527bn compared to Shs 177bn of the previous financial year.

Other reserves of NSSF stood at Shs 6bn, bringing the total surplus to Shs 534bn.

In short, the board’s reasoning was the surplus funds should be reserved to cushion the Fund from turbulence.

“In maintaining the surplus position, consideration must also be given to potential liabilities that may arise in future,” said the Nssf board.

It gave an example of 2014 when URA had a tax assessment of Shs 84bn against the Fund. While these figures were successful contested in courts of law and reduced to Shs 42bn, the Fund said “it is prudent that a surplus available is able to absorb the URA assessment and any other contingent liabilities that could materialize.”

Thirdly, the NSSF board chairman Kaberenge advised that in distributing interest, the Fund has to be wary of customers’ expectations.

“As the retirement sector continues to mature, the Fund has to continuously offer competitive rates to its members. The commitment to pay 2 percent above 10-year inflation means that the Fund plans on offering, at least double digit returns to its members over the next couple of years.”


In a special briefing, Kasaija was told that while total income which includes interest, rental, dividend, other income and share of results from associates grew by 77 percent from Shs 912bn in 2017 to Shs 1.6tn; “overall expenses were 20 percent higher than in 2017.”

Administrative costs increased by 26 percent due to increase in provisions for bad debts (URC Staff contributions’ interest – Shs 1bn and rent receivables – Shs 1.8bn), repairs and maintenance plus insurance expenditure.

The board also observed that depreciation of assets in 2018 increased mainly due to acquisition of new assets that were made (vehicles, furniture, computers, high capacity, generators and software – Shs 54bn).


Following this letter to Kasaija, all board members looked forward to a 13.5 percent interest rate to be applied to members’ accounts as at July 1 for the year ending June 30, 2018.

Interestingly, Kasaija went against from the board’s position to declare a 15 percent interest rate!

In a letter dated August 23, Kasaija wrote to Kaberenge: “Based on the good performance as per the fund’s financial statements for the financial year 2017/2018, an in order to promote the savings culture in Uganda, I hereby declare the interest rate of 15 percent to be applied to members’ accounts for the financial year ending June 30, 2018.”

Efforts to reach Kasaija on his known mobile phone were futile.


But high ranking management officials at NSSF told this investigative website that NSSF MD Richard Byarugaba quietly persuaded Kasaija to increase the interest rate to 15 percent.

Those who attended several board meetings that discussed the Fund’s financial statements and determined the 13.5 percent interest rate said the Fund’s Deputy Managing Director Patrick Ayota was opposed to the idea of raising the interest rate beyond 13.5 percent.

Ayota previously served as the Fund’s Chief Finance Officer and is seen, through correspondences, as a top technical advisor of the board on finance matters.

Contacted to explain his alleged role in hiking the interest rate, Byarugaba responded: “I have never talked to the minister about it at all.”

Byarugaba further said the board is “totally independent of management” and serves as the “interface between the company and the Minister.”

Pressed to explain claims that by convincing the minister, he wanted to cash in on about Shs 300m in interest on his NSSF savings worth Shs 1.5bn, Byarugaba said that was “nonsense” and that “I am already above 55 years.”

Byarugaba, who attended board meetings that decided the interest rate of 13 percent, said the “board recommends but the minister can choose to do what he wants.”

He emphasized that it “was not true at all” that he in any way talked to Kasaija to raise the interest rate.

Informed that the board has authored a warning letter to him in regard to the matter, Byarugaba observed: “I don’t have any warning letter.”

How serious is the situation?

The accounting rule is that interest to shareholders is only paid out of the realized (actual) profits in regard to an entity’s financial statements.

However, NSSF in determining interest included unrealized gains worth Shs 573bn.

Yet, accounting profits (unrealized gains) are not eligible for distribution because they are “book entries” and “fair value” adjustments that do not represent actual income.

Finance experts told ChimpReports on condition of anonymity that “unrealized income from fair value adjustments is transitory and should not influence dividend policy.”

It’s now feared distributing the unrealized profits could lead to erosion of NSSF’s capital, with serious consequences.

In U.K., a fake dividend is repayable to the company by its members or, in some cases, by the directors who sanctioned it.

It appears this is what has happened at NSSF, the largest financial institution with Shs 10tn in assets.

In fact, in a letter dated August 20, Kaberenge told Kasaija that “total income grew by 77 percent from Shs 912bn in 2017 to Shs 1.6tn. However, about 30 percent of the increase was from unrealized gains due to depreciating shilling and the improved regional equity market. Such unrealized gain is normally excluded from distribution to members.”

The board’s recommendation of 13.5 percent interest rate translated into a pot of Shs  990bn for distribution to members. By raising the interest rate to 15 percent, NSSF will fork out a staggering Shs 1.1tn.

Also important to note, the net income net of taxes and costs was only Shs 780bn.

Questions were being asked where the balance of Shs 320bn came from until confidential financial documents showed it was obtained from the unrealised income.

This gain had nothing to do with the fund engaging in any investment activity generating value.

It was depreciation of the shilling against the base currency in which Nairobi stock was purchased and rise in equity on the Nairobi stock exchange.

Most importantly, these market conditions are volatile and could change tomorrow.

A senior manager at NSSF said “such practices induce excessive procyclicality in the local economy yet correlated to market changes in Kenya and has the capacity to destabilize the Uganda financial system.”


Beginning next financial year, all income is likely to be used to recover this loss hence leading to a single digit interest rate.

This happened in 2008 after Chandi Jamwa’s regime declared a record interest of 14 percent from unrealized income, causing a deficit of Shs 50bn.

The subsequent interest for financial year 2009/10, was reduced to 3 percent to cover the deficit and 7 percent in 2010/11. The deficit was only turned into surplus in 2012 – five years later.

Insiders say this saga has caused friction among senior managers and board members who no longer see eye to eye.

Some top shots at the fund have suggested that the Minister should amend the statutory instrument that declared a rate of 15 percent, replace it with a more realistic interest of 10 percent (translates to Shs 730bn) that can be accommodated by the Fund’s net income of Shs 780bn for the year.

“There will definitely be uproar but better deal with reality,” a top management official said.

We are continuously following this matter. If you have any feedback or additional information, please get in touch with Giles Muhame on Whatsapp Number 0778146841

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