Syda Bbumba sees lower lending rates working for economy, banking

October 4, 2016 in Business, Companies, Finance, Financial Services, Policy by Editor

KAMPALA, OCTOBER3 – The banking sector came under attack for contributing to the high cost of doing business with several speakers at a Uganda Bankers Association workshop the Cost of Doing Business in Uganda, accusing the industry of holding on to high lending rates even as the government addresses the infrastructure deficit.

Bankers were accused of not pulling together with other actors with the resulting discordance stunting the economy’s potential.

“We want to see the cost of doing business coming down soon because government is fulfilling its part of the bargain by putting infrastructure such as roads and enabling technology. Uganda has had a comparative advantage when in agriculture but because the cost of doing business is high, the advantage is lost.   Banks need to play their part in bringing down the cost of doing business,” said Ms Syda Bbumba, the Chair of the Committee on National Economy.

Although Bbumba said she had developed second thoughts on interest caps after seeing the impacts of similar moves in Kenya, Ghana and Nigeria where lenders withheld credit and instead opted for investment in treasury bills and government bonds in Kenya, the productivity gains from lower lending rates had beneficial effects for the wider economy including banking.

The bankers association Chairman Mr. Fabian Kasi said whereas it would be desirable to lower the cost of doing business, this cannot be done in isolation of the wider macro-economic framework.

“We want to give affordable banking but sometimes it is difficult because we have to be mindful on the cost of doing business and the cost of banking. Banks are there because customers are there and none can exist
without the other and we are working to ensure that these costs are brought down because the solution lies in solving the structural challenges in the economy,” he said.

Adding perspective, Stanbic Uganda CEO Mr. Patrick Mweheire said although some lenders such as Stanbic Bank have borrowed offshore to make credit available locally, Uganda needs a domestic source of long term financing because mismatches in currencies are another issue that makes the cost of credit and doing business high.

Wilbrod Owor, the Executive Director at the bankers lobby says reducing the cost of doing business will require addressing bottlenecks in the economy. He proposed that tackling the low tax to GDP ratio, increasing the absorption capacity for funds, narrowing the unemployment gap, availability of long-term capital to finance long term projects, government making timely payments to suppliers and delivering contracts in their time frame and ensuring that funds acquired do what they are purposed to do would go a long way in reducing the cost of credit.