BANK OF UGANDA
REMARKS
By
Louis Kasekende (PhD.),
Deputy Governor, Bank of Uganda
............................
Orient Bank's Financial Literacy Programme
At the Launch of the
-
The Orient Bank Business Academy
............................
Kampala, 30 August 2016
The Chairman and Members of the Board of Directors of Orient Bank Ltd,
The Managing Director/CEO of Orient Bank Ltd,
All distinguished guests,
The Media Fraternity,
Ladies and Gentlemen,
Good morning!
Let me thank the Board and Management of Orient Bank for inviting me to
today's launch of the Financial Literacy
bank's and entrepreneurship
-
Programme
the Orient Bank Business Academy.
Financial education and entrepreneurship training are critical in helping citizens
to participate fully in the development process. They both help to alleviate
demand side constraints to financial inclusion and empower citizens to better
manage their personal resources that are vital in developing small and medium-
size enterprises.
I want to highlight three issues which are relevant for this Business Academy
initiative.
The first is the level of entrepreneurship in Uganda and the related high
mortality rate of businesses. Uganda is ranked as one of the most
entrepreneurial countries in sub-Saharan Africa and the world.
According to the Global Entrepreneurship Monitor (GEM) 2014 data, Uganda
had an early-stage entrepreneurial activity rate (the proportion of the population
aged 18-64 years who either are a nascent entrepreneur or owner-manager of a
new business) of 36 percent compared to the Sub-Saharan African average of
about 28 percent.
Yet, the attrition rate is also relatively very high with a failure1 of businesses
estimated at a rate of 26 percent relative to the average of about 16 percent for
sub-Saharan Africa. So, what accounts for this high failure rate? According to
the said GEM report, engaging in unprofitable business accounted for more than
one in every three instances of business discontinuation, and this can result
from a wide range of factors such as continued informality of businesses,
misconception of a business idea to management challenges and problems of
getting and managing finances.
This failure rate means that very few small firms ever grow into bigger firms to
attain economies of scale and contribute to formal employment creation. This is
compounded by low growth expectations of Ugandan entrepreneurs with the
GEM data estimating that only ten percent of the early stage enterprises
expected to employ at least 5 employees within the subsequent five years
The second issue relates to some perceptions being peddled around by some
commentators to the effect that the recent increase in non-performing loans of
the banking industry from 4 percent in June 2015 to over 7 percent in June 2016
was mainly a result of high interest rates.
The truth could not be far from this. While lending rates by commercial banks
have increased since 2015, the current average lending rate of about 23 percent,
on shilling denominated loans, is not out of line with their historical average
over the last few years.
In addition, a recent review by Bank of Uganda to ascertain the reasons for the
non-performance of large credit facilities in commercial banks indicated that
only a paltry 0.3 percent of non-performing loans as at March 2016 could be
attributed to high interest rates. Diversion of funds away from the intended
purpose of the loan was a major contributor to the non-performing loans, only
surpassed by delayed payment by government (domestic arrears) and cost
overruns/ insufficient cash flows. The above three reasons inclusive of
diversion of loaned funds and poor management accounted for about sixty five
(65) percent of the large Non-Performing loans in our banking industry.
The third relates to the feedback we have received from the public during the
Bank of Uganda Golden Jubilee commemoration activities that involved town-
hall meetings, radio talk-shows and public exhibitions in Mbale, Gulu, Arua
and Mbarara.
A sentiment frequently expressed by the public related to a lack of transparency
on charges and interest rates by financial institutions, complaints about
customer care by these institutions, and lack of information about financial
products and services.
I believe all the above three issues can be dealt with by increasing financial
education and stronger consumer protection coupled with developing the
entrepreneurship and management competencies of individuals and the SMEs.
With better financial literacy and enterprise management, it is not inconceivable
to believe that Uganda would have fewer financially distressed firms, a lower
business failure rate, more employment creation and higher rate of savings and
investment.
Uganda needs to pick a leaf from several of the Asian countries that you may
refer to as "manufacturing and enterprise hubs"
by enhancing its entrepreneurial
education and training in order to realize higher labor and enterprise
competitiveness within the global economy. The latest estimates by the Global
Entrepreneurship Monitor, measuring the extent to which training in creating or
managing SMEs is incorporated in higher education such as vocational, college
or business school, rated Uganda with a score of 3 compared to 5 for India and
China, 5.2 for Malaysia, 5.9 for Indonesia, and the highest score of 6.3 for the
Philippines.
I am therefore delighted that Orient Bank is joining this important call and is
working with Makerere University Business School (MUBS) in this financial
literacy drive. This initiative has the potential to augment the capacity of the
participating small and medium enterprises (SMEs) to prepare bankable
projects, improve records management and ultimately enhance their access to
finance. Small sized enterprises in Uganda have about 11 percent of their bank
loan applications rejected compared to only 4.6 percent for the medium sized
counterparts, according to the World Bank's Enterprise Survey data for
2013.
financial literacy drive on micro and small
Therefore the focus of Orient Bank's
enterprises is both valid and essential.
I am also particularly enthused by the involvement of management and
entrepreneurship professionals from MUBS in this
Orient Bank Business
If this financial literacy and entrepreneurial Programme is
Academy.
implemented as designed, it entails some form of apprenticeship model that is
needed by many of our nascent enterprises to sustainably graduate to a higher
scale and be able to access relatively cheaper finance through the capital
markets. I also believe that the program is beneficial to the MUBS academic
fraternity in the sense that it will provide an avenue for them to practice and
gauge the practicability of their entrepreneurship and business management
curriculum.
As you may all be aware, the Bank of Uganda is spearheading the
implementation of a national strategy for financial inclusion with financial
literacy as one of the key pillars. The financial inclusion drive entails elements
of innovations like mobile money, agency and mobile banking; it encompasses
improving data measurement, and financial consumer protection.
In pursuit of even greater financial inclusion and in response to the public
feedback highlighted earlier, the Bank of Uganda is undertaking;
a) Strengthening of the current framework for financial consumer protection,
including supporting the implementation of the recently enacted Tier four
Microfinance law;
b) Institutionalizing and reinvigorating the mechanism for complaints
handling within the banking industry;
c) Supporting efforts to improve efficiency and realize economies of scale
within the formal financial sector and increasing the diversity of financial
institutions and products; and,
the Bank of Uganda's communication and stakeholder
d) Further bolstering
engagements, with particular emphasis on improving financial and
economic literacy of the public.
With these remarks, it is my honor and pleasure to formally declare the
Orient
Bank Business Academy launched. I thank you for listening to me.