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Economists Fault Banking Laws for Favoring Foreign Ownership

Uganda is home to 25 commercial banks of which the top players namely Barclays Bank, Stanbic Bank and Standard Chartered Bank are foreign owned controlling 44.3percent of the total assets of all commercial banks in Uganda.

Audio 4

Economists have faulted Uganda’s banking regulations for favoring foreign ownership of commercial banks, which limits access to financial services for small enterprises.

 

Prof. August Nuwagaba Dr.  Ezra Suruma argue  that because SME’s are a major economic entity for Uganda, the economy needs locally owned banks as opposed to foreign owned banks that are dominant today.

Uganda is home to 25 commercial banks of which the top players namely Barclays Bank, Stanbic Bank and Standard Chartered Bank are foreign owned controlling 44.3percent of the total assets of all commercial banks in Uganda.  

Nonetheless, Centenary Bank, Housing Finance Bank and Crane Bank are indigenous institutions with majority Ugandan ownership.

Nuwagaba argues that the development paints a gloomy picture on Uganda’s economy. He adds that for any economy to thrive, development must be generated from within.

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The current banking regulations as stipulated by Bank of Uganda require that for any commercial to be set-up, it should have minimum capital of UGX 25bn. There are also plans to increase this capitalization in order to protect customer deposits and prevent banks from taking unnecessary risks.

However, Prof Nuwagaba says such regulations increase some of the fees charged by bankers for SME’s to borrow. Currently, interest rates are still a major hindrance for SME’s to borrow and when some borrow, the default rates are still considerably high, he adds

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Dr Ezra Suruma, a former finance minister and a long term critic of the privatization of Uganda Commercial Bank, says that in order to sidestep these regulations, savings and cooperatives are needed as options for Uganda’s small enterprises to borrow.

He emphasizes that Uganda needs to build a pool of savings, which then can be used as capital to grow businesses. Current savings rates in Uganda are still only about 5percent of Uganda’s GDP.

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The National Bank of Commerce (NBC), which was closed down last year, and partly owned by Dr Suruma, suffered the fate of these banking regulations. He describes these rules and laws as unjust.

Ugandan owned banks like Greenland Bank and International Credit Bank are all currently none-existent. He points out that Bank of Uganda should be encouraging more Ugandans to own banks.

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This at a public lecture on access to business finance for Small and Medium Enterprises in Uganda. The lecture held at Makerere University last evening offered a platform for leading economic experts to evaluate the existing policy environment for SMEs in Uganda.

 

 

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