Ugandan banks now of age
By Edward Ojulu
Nov 20, 2003
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KAMPALA - With the debit card set to become a local mode of payment by the end of the year and credit cards by 2004, Uganda's banking industry will have undergone a complete revolution.
Their introduction in Uganda is a sign of how far things have come. Emerging from the crisis, which rocked the industry between 1997 and 1999 that claimed at least four banks; Uganda's banking industry continues to score impressive development. This has enabled the industry regain public confidence. Central bank officials have told BusinessWeek that as part of the effort to make the country's payment system faster, new innovations such as credit cards and debit cards would soon be commonly used for local daily payments. At the same time, the central bank is making it mandatory for all banks to install Automated Teller Machines (ATMs) by March 2004. Mr Juma Walusimbi the director public relation and bank of Uganda however said the central bank was merely encouraging all commercial banks to install ATMs. There are plans to link all the ATMs in Uganda via an electronic switch to enable customers to access their accounts from any ATM in the country. When Standard Chartered Bank pioneered the ATM use in Uganda in 1998 it appeared to be one of those comforts enjoyed by the affluent. Today, ATMs have grown from three operated by one bank in 1998 to more than 80 operated by 10 out of 15 banks. But more important, the ATM functionality has rapidly grown to become a multi-function facility. Growing from a mere cash withdrawal machine, it is now possible to buy and load airtime on all the three cellular phone networks. For MTN customers, they can even load airtime on their phones straight without going to any ATM. It is also possible to pay your water and electricity bills using the ATM. Under a deal between Nile Bank and ONDEO Services Uganda Limited- the revenue collectors for National Water and sewerage Corporation, water consumers can pay their bills through the ATM. This is expected to reduce the inconveniencies of lining up to pay bills. You can also request a chequebook, deposit cash, get a mini bank statement and pay school fees and authorise other in-house transactions at all ATMs. All this has helped decongest banking halls. Nile Bank Executive Director, Mr Shahar Meidan says more is in the pipeline. "As more banks get professional, you have to get more innovative to stay ahead. We are working with more service providers so we can package a time and money saving product," he says. The good news is that all these are at a minimal cost of just about Shs 200 per transaction, as compared to Shs 1,000 charge per cheque transaction in most banks. Mr Richard Etemesi, managing director of Standard Chartered Bank and the chairman of Uganda Bankers Association, told a recent regional dialogue on payment systems development in Kampala that banks are planning further innovations to improve the payment system. Some of these include the introduction of credit and debit cards to reduce the inconvenience customers go through in carrying out all their transactions in cash. Some banks have plans to introduce the debit card by the end of the year and the credit card by early 2004. Orient Bank Managing Director, Mr Samwiri Njuki, told the same dialogue seminar last month that the use of these facilities was being tested by his bank. Banks have also introduced electronic banking products that enable corporate customers transact banking business from the comfort of their offices or even their homes, Etemesi said. Here, funds are transferred electronically from one account to another in a very short time. Local commercial banks adopted the electronic fund transfer standard in 2002 and in July the following year, banks started exchanging electronic transfer transactions. Under this system, customers can transfer money from one account to another - either as credit initiated by account holder or direct debit initiated by the beneficiary, a senior bank of Uganda official said. The innovation has paid off with the near elimination of forgeries and delays that characterise the use of cheques. Through electronic transfers, bank customers can now send payments by credit transfer to any bank in any part of the country making it technically possible to pay cheques in just 24 hours. According to Etemesi, Internet banking is also under consideration by the local commercial banks as the cost of accessing the Internet continues to decline. Already, some banks - like Citibank - offer Internet banking to corporate clients, Mr Nadeem Lodhi, managing director of Citibank Uganda Limited, confirmed. "With continuing improvement in telecommunication and technology, this is certainly a product that is bound to grow in the near future," Etemesi added. He however says that the speed at which these initiatives take root, depends on the growth of the bankable population. Few bank customers Current statistics indicate that more than 60 percent of the payments done in the country are outside the banking industry. At the same time, banking services are concentrated in urban areas leaving about 87 percent of the rural-based micro-businesses without banking services. The reality however is that a majority of the Uganda population lives on less than $1 per day and therefore provide no viable market for bank services. This can be seen in the fact that most of the banks have several outlets in Kampala while others have none outside the city. But Meidan says the problem is a poor banking culture. "Most people believe they don't have bankable money. Probably they fear bank charges, but using our NileCAsh account, we want to transform this," He says since it was launched about two years ago, they have acquired 70,000 customers. As the ATMs and electronic money transfer systems no longer provide a competitive edge to a few banks, the battle for customers has shifted to provision of loans. Consequently, monthly salary earners are now the primary target of all banks, most of them (banks) giving unsecured loans of up to Shs 10 million. This is possible at Barclays Bank, Crane Bank, Nile Bank, DFCU and Stanbic Banks with the use of a letter of undertaking from the employer - assuring that the employee's salary would be paid through the bank, as the only security for the loan. "Overtime, consumers' preferences keep changing and their expectations also change with the changing market trends," said Julius Omoding, business development manager at Barclays Bank. He says this is the notion behind the innovations in the industry. Other recent innovations are banking hours increasing from between 8.30 and 2pm up to 4.30 pm. But with the ATM facility, it is now 24-hour banking. Additional reporting by Muhereza Kyamutetera
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© 2003 The Monitor Publications
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