Financial Independence for Uganda at 50 – Indigenous Banking.
I was fascinated by Joseph Lutwama’s article titled Harnessing People Power to develop Kampala which appeared in the Daily Monitor of 8th May 2012 in the Prosper Magazine. He brought to the fore an interesting concept of retail bonds to help finance big investments that will aggregately foster Uganda’s socio-economic transformation. Two particular facets of his argument stand out that I wish to allude to and build a case for indigenous economic development. One is the simple magic and power of numbers and secondly the notion that investors in Uganda are always thought to be foreign e.g. Americans, Britons and Chinese. Mr. Lutwama highlighted the plight of the traders in Kiseka market that need Ugx 800 billion to develop the market into a world class one but have only managed to raise ugx 75 billion, and thus are still Ugx 165 billion short of at least 30% of the total project cost. We have a lot of opportunities at our disposal that social policy can tap into, to build huge pools of savings to provide investment capital for both large scale projects and Small and Medium Enterprise initiatives.
Uganda has a Civil Service of over 320,000 people with an annual wage bill of Ugx 1.8 trillion. If all the civil service saved 10% of their monthly salary and put these savings in one pool, they would raise Ugx 180 billion in one year! Ugx 180 billion is all that our KACITA traders in Kiseka market need to top up on their Ugx 75 billion to kick start the project and secure long term financing from banks and investment firms. It is clear with minimal saving, civil servants can provide equity or credit to the traders project. Such an initiative would go a long way in creating social and economic linkages between different groups in the country thus fostering nationhood and patriotism too. Ugx 180 billion can be used to start a Civil Servants Bank. All they need is Ugx 25 billion as Bank of Uganda capital requirement and Ugx 55bn to open up bank branches and cover administration costs, and then they have a whole Ugx 100 billion to provide loans and credit to SMEs, traders and farmers. The recently released bank financial statements for 2011 indicated that total net profits earned by Stanbic Bank, DFCU bank and Barclays Bank summed up to slightly over Ugx 180 billion. It is clear financial services sector is lucrative and there is an increasing demand for credit to boost both production and consumerism. Why can’t ordinary Ugandans enjoy these profits and benefits too? One of the facets of the NRM ten point programme was to build a strong and self- sustaining economy. How are we building self-sustaining and independent economy when we are chronically dependent on foreign capital? We need to be cognizant of the fact that foreign capital is taxes and or savings form our foreign peers. Our leaders always find it appropriate to quote the China economic model and the Asian success story but don’t seem to translate this talk into pragmatic framework and social policy to finance investments, boost incomes, and create indigenous ownership of key economic sectors. Our regional partners Kenya have strong local banks that started out as micro-finance institutions e.g. Jamii Bora, K-Rep, Family Bank and Equity Bank. In 2008 Equity Bank bought Uganda Micro Finance Uganda LTD at $25.3 m (Ugx 64 billion), and has now extended to Rwanda and Sudan. If all the 320,000 civil servants had contributed just Ugx 200,000 each, they would have raised the Ugx 64 billion to buy Uganda Micro Finance LTD. With their monthly salaries, savings and deposits, they would be able to grow its cash assets and thus create a huge pool of savings to provide credit to SMEs and individuals.
The Ministry of Finance, Planning and Economic Development in their Annual Economic Performance Report 2010/2011 noted that the potential comparative advantage of cooperative microfinance institutions lies in their low-cost member-based management and governance, their not-for-profit social mission, their additional services apart from savings and loans, and their intermediary role in a local context. The report further notes that Ugandan SACCOs and Micro Finance institutions will have to make major strides in order to make this potential a reality and become sustainable financial institutions. As we celebrate 50 years of Independence, we need framework and policy to tap into the dividends of Uganda’s growing middle class and wage earners to create savings pools to finance investment and socio-economic projects.