I told a fully packed audience at Serena (Victoria Hall) that despite the fact that we have had 25 commercial banks for a long time, Uganda only boasts of a paltry banked population of 8.3 %.
By Prof Augustus Nuwagaba
On August 9, 2016, I was invited by MTN as panelist on the launch of a financial product called MoKash. This product takes mobile money services to a higher notch, because apart from sending and receiving money using ones mobile phone, one can actually deposit/ save money on your phone and earn interest on that saving.
Additionally, one can borrow money from MoKash. I was invited to discuss the issue of "barriers to financial inclusion". I told a fully packed audience at Serena (Victoria Hall) that despite the fact that we have had 25 commercial banks for a long time, Uganda only boasts of a paltry banked population of 8.3 %. In 2012, I was contracted by Economic Policy Research Center (EPRC) to conduct a study on "Access to financial services in Uganda" (FINSCOPE), and the findings were: "that most people fear commercial banks" and this fear is not without reason. First, most commercial banks have for long been located on high streets of major urban centers which has for a long time made them out of reach of the majority of people.
Secondly, they charge high interest rates (28-30%). This alone has chased away would be depositors. Thirdly, as I discovered from my MBA research ("Impact of Central Bank Monetary Policy on Commercial Bank Competitiveness in Uganda"), most commercial banks in Uganda have narrow financial products, most of which do not favour small business enterprises and low income earners. As a result, Uganda remains with a small banked population of only 2.900,000 out of 34,900,000 people. I advised commercial banks to consult those who are in the know, so that they get helped to re-orient themselves to the needs of the people, if they want to remain competitive.
I informed MTN and Commercial Bank of Africa (The Partners in MoKash), that most African countries have low velocity of money (Money circulation / Income), meaning that our money does not "move" fast from hand- to- hand, largely because of few "down-to-earth" economic agents, implying low financial deepening.
The velocity of money is very important because it determines the rate of economic transactions (as all these have to pass through money as a medium of exchange) and hence, the level and volume of economic activity, which is the major driver of economic growth. I re-iterated that for Uganda to transform to the much revered middle income status, we must enhance what we call domestic absorption (Saving and investment), reduce our propensity for consumption, enhance export sector performance (improve exchange rate of our domestic currency-UGX against major hard currencies), while dampening imports.
The combination of low consumption, low import invoices, high export receipts and increased investment will definitely derive higher GDP growth, currently estimated of USD 26.4 Bn. However, we need to enhance financial inclusion, and pool the current 68% Ugandans from subsistence to monetized economy.
As I have re-iterated before, the major hurdle remains high interest rates from financial institutions. My submission on this problem which has caused tremendous distress to many business enterprises in Uganda is that we need to indigenize the financial sector particularly banking. The Chinese and Italian banking models come into perspective here. In Italy, most banks are indigenous, based either on family ties or geographical configuration of share holders and later looped together on the co- operative principles. Actually Italy has more than 300 banks almost all of them based on co-operative model. They are also sectoral banks: Agricultural, industrial, services etc, and interest rates ray accordingly.
As a result, interest rates are low (determined by the shareholders themselves and in accordance to the needs of the borrowers). I concluded by urging Ugandans to espouse a savings and investment culture as opposed to a culture of consumerism which has of recent become a cancer in Uganda. As the proverbial adage asserts "you can never live on savings of other people…….there is no free lunch…..no one owes you a living"
The writer is a consultant on Economic transformation in the African region