Louis Kasekende: Stronger rules foster growth, stability
Keynote address by Dr Louis Kasekende, Deputy Governor of the Bank of Uganda, at the
official opening of the Banking, Finance and Insurance Expo 2011, Kampala, 15 April 2011.
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Uganda's banking industry has experienced significant transformation over the past three
years, with rapid growth in the number of service outlets for various categories of financial
services. Branches of commercial banks, credit institutions and microfinance deposit-taking
institutions have increased from 194 in 2007 to 397 in 2010. Similarly, the number of
Automatic Teller Machines has risen from 262 in 2007 to 598 by December 2010.
In addition, numerous financial products and customized services have been rolled-out by
financial institutions in response to the ever-changing tastes of the clientele. These include
electronic banking services, faster methods of money transfers, mobile banking, transfer
services, and flexible banking hours to suit different categories of customers.
The Deputy Governor said that the Central Bank is cognizant of the inter-linkages between
the various sectors of the financial system because instability in one sector could eventually
spill over into other sectors and spark off system-wide crisis. He urged regulatory agencies to
draw lessons from the financial crisis that rocked the western world and spilled over to the
developing economies. Each sector must be effectively regulated in order to foster
systemwide soundness and stability and mitigate attendant risks.
"To this end, Bank of Uganda has signed a Memorandum of Understanding with Capital
Market Authorities and Uganda Insurance Commission in order to foster formal exchange of
information for regulatory purposes.
"Bank of Uganda has also set up a Financial Stability Department and Financial Sector
Surveillance Committee to look at the macro-linkages," he said.
Uganda's financial system comprises formal, semiformal and informal institutions. The formal
institutions include banks, Microfinance Deposit-taking institutions, Credit Institutions,
Insurance companies, Development Banks, Pension Funds and Capital Markets. The semi
informal institutions include SACCOS and other Microfinance institutions, whereas the
informal ones are mostly village savings and loans associations. Formal institutions are less
prominent in rural areas than urban areas and they only serve 14% of the rural population.
Informal institutions play an important role in the rural service provisions and serve
approximately 12% of the rural population. These numbers indicate that Uganda's financial
system is still quite shallow.
Most Ugandans (62%) have no access to financial services. The number of the population
holding accounts in banks is four million or 33% of the 12 million who are bankable. The
savings to GDP ratio is still low at 16%. In addition, financial intermediation is poor as
indicated by the stock of private sector credit of 11.8% of GDP. These numbers do not
compare favourably with Kenya and Tanzania.
There are about 22 Insurance Companies, 26 Insurance Brokerage Firms and eight
LossAssessors operating in the country. The insurance industry just like the banking industry,
remains largely underdeveloped. The products offered by these companies are limited to life
and nonlife insurance products. In spite of the fact that agriculture is the backbone of the
economy, Uganda lacks agricultural insurance, weather indexing of agricultural production
and micro insurance for low income groups. The lack of a system of crop finance is a major
barrier to lending to small farmers.
"The insurance sector must therefore take a closer look at developing new insurance
products that suit their clients, train their personnel, increase distribution channels and
enhance marketing," Dr. Kasekende said.
Banking, Finance and Insurance sectors are the life-blood for growth and development of the
financial system and the entire economy. Hence the key sectors of the financial system
deserve priority attention by government as they are instrumental in the process of savings
mobilization and capital accumulation, key ingredients in the growth and development
process of the economy.