BANK OF UGANDA
Remarks by
Louis Kasekende (PhD.),
Deputy Governor of the Bank of Uganda
Launch of the 10-Year Capital Markets Development
Master Plan
Kampala, Serena Hotel
Thursday June 15, 2017
The Chief Guest, H. E the President of the Republic of Uganda,
The Hon. Minister of Finance, Planning and Economic Development,
Cabinet and State Ministers, Hon. Members of Parliament,
The Chairman, CMA Board, Chairman, the Capital Markets Masterplan
Steering Committee, Distinguished guests, ladies and gentlemen,
Good morning.
I am delighted to be here this morning to participate in the launch of the
Capital Markets Development Master Plan. I am speaking on behalf of the
Governor of the Bank of Uganda, Prof. Emmanuel Tumusiime-Mutebile,
who is unable to be here due to personal reasons. I would also like to point
out that the Governor is the Chairman of the Financial Markets
Development Committee (FMDC). This committee was set up to steer the
development of the financial sector and to ensure that the sector maximizes
its contribution to the economy. The FMDC coordinates reforms across the
banking, capital markets, insurance and pensions sectors.
The premise behind the creation of the FMDC in 2008 was the recognition
of the vital and varied roles which the financial system must perform to
support economic development.
In essence, the financial system must mobilize savings from households
and corporations, and allocate those savings to a variety of economic
agents which can put them to productive use. In addition, the financial
system must also provide other financial services which are needed in a
modern economy, such as payments and insurance services.
Savings are a scarce resource in a developing economy like ours; hence it is
essential that the process of allocating these savings - sometimes referred
to as intermediation - is very efficient. As demands for investable funds far
outstrip their supply, the task of the financial sector is to ensure that these
scarce resources are allocated only to those firms and households which are
best able to use them productively and, in doing so, to generate income for
the savers who have provided the funds; for example in the form of interest
or dividends.
For practical reasons, a market based financial system, driven by the profit
motive, is much more likely to generate efficient allocations of scarce
financial resources than a system characterized by state controls, although
that does not obviate the need for appropriate prudential regulation, by
institutions such as the Bank of Uganda and the Capital Markets Authority,
to safeguard the interests of savers and other users of the financial system.
While we recognize that financial markets are characterized by market
failures, it is often very difficult, in practice, for governments to correct
these failures and efforts to do so are often counterproductive.
An important component of the financial system is the capital market,
which entails funds being mobilized by firms, institutions or the
government directly from savers through the issuance of equities or bonds.
Although market based financial systems are sometimes contrasted with
bank based systems, this is in some respects a false dichotomy. The capital
market is not a substitute for the banking sector. Instead capital markets
and the banking sector are complements; each catering for different needs
of the economy in terms of financial services.
In particular, efficient capital markets are much better suited than
commercial banks to provide long term finance to the corporate and public
sectors. The capital market is also better placed to accommodate the needs
of investors - both institutional and personal - who require long term
assets and have a higher appetite for risk than is typical among depositors
in commercial banks. As the business sector of our economy develops and
as a larger share of the population are able to participate in institutional
vehicles for savings, such as pension schemes, the demand for capital
market instruments will grow.
In this regard, I would like to note that one of the most important reforms
for stimulating capital market development in this country is the genuine
liberalization of the pensions sector, so that all pension providers licensed
by the Uganda Retirement Benefit Authority can compete on a level
playing field to manage both mandatory and voluntary pension
contributions. We have been discussing pension reform for the last 20
years. We have put in place the appropriate regulatory structure. Now is
the time to liberalize the sector and open it up to competition. Monopoly is
never conducive to the vibrant growth of a market.
To conclude, I would like to commend the Capital Market Authority for
their efforts to spearhead the preparation of the Master Plan for the capital
market. The Bank of Uganda is proud to have contributed to these efforts
and we will continue to play a role in supporting capital markets
development in our country.
Thank you for listening.