Introduction to financial services 2

THE UGANDA INSTITUTE OF BANKING & FINANCIAL SERVICES

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ISO 9001:2008 CERTIFIED

1Introduction to Financial Services


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LEARNING OUTCOMESAfter completion of this study you should be able to:

• Elaborate the history of banking in Uganda and relate that to present institutions in the financial sector

• Explain the structure of Uganda’s financial sector• Discuss the trends in Uganda’s financial sector


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Types of Financial Institutions and their Respective Roles

Uganda Retail Banks

The Structure of Financial Markets

The Credit Reference Bureau

Trends in Financial Services Industry

Personal Financial Services

MODULE COVERAGE


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A Historical perspective of Uganda’s banking sectorThe banking system in Uganda today has been shaped by three

major events. 1. History: When the country obtained her independence in

1962, there were four commercial banks, all international. These banks were often criticized for lending only short-term, for the finance of foreign trade and the provision of working capital, to companies owned by non-African residents.


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Impact of the 1970’s economic breakdownDuring the 1970s and early 1980s, the number of commercial

bank branches and services contracted significantly. This was because of the severe economic breakdown during the time. Whereas Uganda had 290 commercial bank branches in 1970, by 1987 there were only 84, of which 58 branches were operated by government-owned banks.


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2. Impact of new regulation 1993In 1993, the Financial Institutions Act was enacted to replace the weak

1969 Banking act. Specifically it • Set a minimum paid-up capital for local investors to start a bank

specified minimum ratios for core capital and total capital to risk-adjusted assets of 4 percent and 8 percent respectively, along the lines of the Basle accord on capital adequacy.

• Imposed restrictions on insider lending, large credit exposures, and investment in non-bank business or purchase of real estate.

• Limited exposure to a single customer or group of customers with a common interest and aggregate lending to a bank’s own directors, their families and businesses, were both restricted to a maximum of 25 percent of core capital.

• It also gave Bank of Uganda (BoU) a range of options for dealing with financial institutions acting imprudently


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3. The banking crisis of 1998-99During the crisis, four commercial banks were closed on the

basis of imprudent banking practices including the second and fifth largest banks by deposits.

The banking crisis of 1998-1999 was followed by the new Financial Institutions Act of 2002 aimed at reducing the prevalent insider lending and equity concentration, strengthening banks internal management, and strengthening supervision and regulatory roles of the central bank. A crucial component of financial reforms was the restructuring of the Uganda Commercial Bank (UCB) and latter its privatization creating the largest bank by deposit in Uganda today; Stanbic Bank.


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– A moratorium on new commercial bank licenses was declared in 2004

– The moratorium on new banks was lifted in July 2007. During the eighteen (18) months that followed the lifting of the moratorium, several new commercial banks were licensed.

– Between 2008 and 2009, several of the existing banks went on an accelerated branch expansion.

– In November 2010, Bank of Uganda directed that all commercial banks in Uganda, must raise their minimum capital to UGX 10 billion (approximately US$4.34 million) by March 2011 and to UGX 25 billion (approximately US$11 million) by March 2013.


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The financial sector has many players. These include regulators, parent ministries, regulated and unregulated financial service providers, insurance companies and others.

The mainstream financial sector (providers of deposit and loan products to the public) is divided into tiers:

1. Tier I (commercial banks) 2. Tier II (Credit Institutions)3. Tier III (micro deposit taking institutions (MDIs)) 4. Tier IV (NGOs), savings and credit co-operatives, microfinance companies).

Players in Uganda’s Financial Sector


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• Bank for commercial banksAll commercial banks maintain accounts with the BOU. Broadly, these accounts fall into two

categories: Statutory (compulsory) accounts and operating or “clearing” accounts. The statutory accounts have funds that belong to the banks and other regulated financial institutions but are restricted as mandatory/ statutory deposits. The clearing accounts work as normal current accounts.

• Banks’ Lender of last resortCommercial banks in temporary cash shortages borrow from the Central Bank if they cannot

borrow from other banks/ financial institutions. Interest rate administration• As an instrument for monetary policy, BoU influences the interest rates through the rates it

charges other banks. Presently, BoU also prescribes the minimum bank rates for inter-bank lending to influence the overall borrowing level through influencing loan pricing (interest rates). A higher rate discourages borrowing and reduces overall money supply in the economy to reduce or contain inflation. A lower rate encourages more borrowing and has a reverse effect.

Roles of Bank of Uganda


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• Currency issuing authorityThe Central Bank is the sole currency issuing authority in the country

• Government’s BankTreasury funds are kept in the Central Bank.

• Custody of the National foreign currency reservesThe Central Bank is charged with ensuring that foreign exchange reserves are kept

at acceptable levels.• Credit and liquidity control; Through Bank Rate policy, Open market operations, Variable reserve

requirements, Collateral margin requirements etc., the BOU indirectly controls the amount of money in circulation and the level of credits advanced by banks



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• Financial markets developmentBoU is championing a number of programs and projects aimed at developing the

Ugandan financial markets further. Working with other stakeholders, BOU spearheads the Financial Markets Development Committee (FMDC). The key focus areas presently are the Credit Reference Bureau, Financial Literacy, Agricultural Finance, Standards and benchmarking.

• Supervision of banksUsing standard performance and stability indicators, the BoU regularly inspects and

supervises the activities of commercial banks. In supervising banks, Credit Institutions and MDIs, BoU uses robust, risk-based regulation guidelines. Supervision is meant to ensure that the banking/ financial sector is overall healthy, sound and stable. Institutional health and performance are key broad areas of concentration

Clearing House facilities for Commercial banks:• The BoU is where inter-bank cheques get paid and thus inter-bank debts are settled.



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Commercial Bank- DefinitionThe Financial Institutions Act of 2004 classifies a commercial bank as an

institution which meets the following criteria;a. Acceptance of call, demand, savings and time deposits withdrawable by

cheque or otherwise;b. Provision of overdrafts and short to medium term loans;c. Provision of foreign exchange facilities;d. Acceptance and discounting of bills of exchange;e. Provision of financial and investment advice;f. Participation in inter-bank clearing systems;g. Gives guarantees, bonds or other forms of collateral, and accepts and

places third party drafts and promissory notes connected with operations in which they take part.

Roles of Commercial Banks


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• Accepting deposits- This is perhaps the most important function of a commercial bank. Commercial banks receive and accept deposits from those who can save.

• Fixed deposit: a type of deposit which fetch much more rate of interest and are drawn after the expiry of a specified period.

• Current or demand deposits: deposits which carry a very low rate of interest or no interest and allow withdrawal at any time.

• Savings bank deposit: deposits which are aimed at encouraging saving among the people and bear a higher rate of interest than the current deposits but less than fixed deposits.

• Advancing of Loans- Advancing loans is another important function of commercial banks. The size of a bank’s loan portfolio usually depends on the bank's strength in receiving deposits.

• When a customer is allowed to draw more money from his account than he has in it, the bank creates an overdraft.

The Primary functions of commercial Banks


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Banks make payments of monies on the basis of standing instructions made by customers.

• Banks collect dividend and interest on securities as per standing instructions of the customers.

• Banks facilitate the transfer of funds from one bank to another or from one branch to another.

• Banks collect cheques, bills and promissory notes.• A bank can act as an executor or trustee when it facilitates the

administration of a will.• Safe custody of valuable and important documents against theft and fire

because banks provide locker facilities.• Reference (act as a referee) in respect of financial standing of the customer.• Issuance of personal and commercial letters of credit.

The secondary functions of commercial Banks


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1. Long term lending (project finance)Loans of 5 to 10 years can be made, usually for start-up or expansion of

commercially oriented projects. 2. Medium term lendingMedium term lending usually ranges from loans of 2 to 4 years. 3. Working capital lendingThese are Short term loans of 6 to 24 months for normal working capital. 4. Equity investmentsDevelopment banks make equity investments (buy shares) in select client

companies. 5. Helping clients with refinement of project concepts, and implementationContribution to good corporate governance in client companiesDevelopment banks sometimes do this through their representation on client

company boards.

The Role of Development Banks


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• Microfinance companies and NGOs Tier 4 microfinance companies are not regulated and offer

small/ micro loans to their customers, usually the poor/ low income people who are economically active. MDI or micro deposit taking institutions are microfinance institutions which are authorized to receive deposits. MDIs are regulated by Bank of Uganda.

• Savings and credit co-operatives (SACCOs)SACCOs are formal cooperative societies that are engaged in

providing savings and loan facilities to their members. In Uganda, SACCOs are regulated by the Commissioner for Co-operatives -Ministry of Trade and Industry

The Role of other financial Institutions


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• Credit Institutions and MDIsThese are regulated by BOU and are licensed to take savings, lend and

engage in a limited range of other financial activities (CIs can do a bit more than MDIs, for instance forex operations).

• Leasing CompaniesThese are involved in lease financing of productive assets. The user

(lessee) keeps paying periodic rentals to the owner (lessor), and usually acquires ownership of the assets at the end of the lease period, for a token price.

• Multi-national Long term InvestorsThese are multinational organizations doing mainly large, long term

loan and equity investments. They do funding mainly to large start-up and expanding projects. Examples are KfW, DEG, IFC, FMO etc.

The Role of other financial Institutions


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Insurance companies are regulated by the Uganda Insurance Commission. Insurance companies offer to bear the risks of certain eventualities for their clients in return for insurance premium payments by the clients.

There are the two basic principles on which insurance companies work.

1. Pooling of Risks: An insurance company has to have a large enough number of clients (critical mass) insuring similar risks to create for them a class of insurance. This is based on the expectation that the larger the number of clients insuring against a particular risk, the smaller will be the proportion of total premium paid out as compensation to policy-holders of that category. This enables the insurance company to fulfill the claims and still make a profit.

The Role of Insurance Companies


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2. Insurability of Risks: The eventualities which have a high likelihood of occurring are, in general not insurable. This is because insurance companies have to do business profitably and sustainably.

Insurance Companies as Fund sourcesBy careful risk selection and management, insurance companies

usually retain substantial surpluses every year (some poorly managed ones don’t!!) They usually invest in bonds, Treasury Bills, fixed deposits and, selectively, in the equity of good companies. In most of the cases, these funds are then available to the banks to intermediate. Thus, insurance companies are sources of funds for investment.

The Role of Insurance Companies


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1. Rotating savings and credit associations (ROSCAs) 2. Deposit collectors3. Savings clubs.

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What are the characteristics of participants in the informal sector?

The Informal sector


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4. Reciprocal lendingHouseholds or individuals lend to each other whenever one is in need and

the other is in position to lend.

5. Accumulating savings and credit associations (ASCAs)Periodic joint savings like the ROSCA, but the savings accumulate rather

than being liquidated at each meeting. Members may borrow from the fund at an agreed interest rate. Usually, the fund is periodically divided up among the members together with any interest earned.

6. Money lendersMoney lenders lend money to people on character or security basis. The

loans usually have very high interest rates and stringent repayment requirements

The Informal sector


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The informal sector

7. Supplier creditSome small businesses and

households get credit in kind from their suppliers who usually know them well. Hawkers, cotton farmers and small scale retailers are examples


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The informal sector

8. Informal insurance schemes

A loose association of neighbours pooling their meagre funds to buy collectively owned necessities or just to keep the money for eventualities like funerals, celebrations, sickness, theft, fire, death etc.


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Mobile Money

These are financial services offered by Mobile Network operators. The main products include payments, money transfers and mobile phone banking which is jointly offered with financial institutions. Mobile money is a non traditional financial service offered by a non financial institution.


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Uganda Retail Banks





MODULE COVERAGE


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Tier 1: Commercial banksWe looked at the definition and functions of a commercial bank as given in the

Financial Institutions Act in section 1.1.4. Commercial banks are placed in tier 1 under the classification of financial institutions in Uganda. This tier includes commercial banks which are authorized to hold checking, savings and time-deposit accounts for individuals and institutions in local as well as foreign currencies.

Tier 2 - Credit InstitutionsThis tier includes regulated institutions that intermediate deposits but are not

commercial banks. They are authorized to take customer deposits and to establish savings accounts of any type. They are also authorized to make collateralized and non-collateralized loans to savings and non-savings customers. At the time of writing this course, there were three Tier 2 financial institutions in Uganda:

1. Mercantile Credit Bank - privately owned2. Opportunity Uganda Limited - A 100% subsidiary of Opportunity International 3. Post Bank Uganda – Wholly owned by the Government of Uganda

Uganda’s Retail Banks


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Uganda’s Retail Banks- Market share by Asset size 2010

Stanbic BankStandard Chartered BankBarclays BankDFCU BankCentenary BankCrane BankCitibankBank of BarodaOrient BankHousing Finance BankDiamond Trust BankBank of AfricaTropical BankEquity BankKenya Commercial BankUnited Bank for AfricaEcobankFina BankGlobal Trust BankCairo International BankNational Bank of CommerceImperial Bank UgandaABC Capital Bank


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Tier 1: Retail BanksWe looked at the definition and functions of a commercial bank as given in the

Financial Institutions Act in section 1.1.4. Commercial banks are placed in tier 1 under the classification of financial institutions in Uganda. This tier includes commercial banks which are authorized to hold checking, savings and time-deposit accounts for individuals and institutions in local as well as foreign currencies.

Tier 2: Credit InstitutionsThis tier includes regulated institutions that intermediate deposits but are not

commercial banks. They are authorized to take customer deposits and to establish savings accounts of any type. They are also authorized to make collateralized and non-collateralized loans to savings and non-savings customers. At the time of writing this course, there were three Tier 2 financial institutions in Uganda:

1. Mercantile Credit Bank - privately owned2. Opportunity Uganda Limited - A 100% subsidiary of Opportunity International 3. Post Bank Uganda – Wholly owned by the Government of Uganda


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Tier 3: Micro Deposit-Taking Institutions (MDIs)This class includes microfinance institutions which are allowed to take savings deposits from the

public, and to use the money to advance small loans (up to a prescribed maximum) to their customers. MDIs are not authorized to offer checking accounts or to trade in foreign currency. They can, however, engage in national and international money transfer business as agents of remittance organizations.

The main differences between MDIs and Credit Institutions (CIs) are:• Minimum capital requirements is higher for CIs than for MDIs• CIs do not have the kind of absolute maximum they lend; but MDIs have• MDIs are regulated in the context of being microfinance institutions and thus supervised with

regard to their use of established lending methodologies, while CIs are regulated as institutions that engage in more conventional lending.

As of September 2011, there were four MDIs:1. FINCA Uganda Limited 2. Pride Microfinance Limited 3. Uganda Finance Trust Limited 4. UGAFODE Microfinance Limited


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Tier 4: Unregulated InstitutionsThese institutions are not regulated by the Bank of Uganda.

Apart from SACCOs (which take savings from their members/ owners and are regulated by the Commissioner for Cooperatives under the Cooperative laws), tier 4 institutions are not authorized to take in deposits from the public. They are, however, allowed offer collateralized or non-collateralized loans to the public. As part of their lending methodology, they are also allowed to take in “forced savings” to back the cross-guarantees of loans by borrowers. There are over 1,000 SACCOs and over 500 non-SACCO tier 4 MFIs in Uganda.


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1. Operations

Planning for and execution of the normal deposit taking, other customer related transactions and processing these transactions into the records on a day-to-day basis; overseeing branch work and ensuring their smooth operations

3. Human Resources

2. Marketing & Strategy/ Sales/ Business development

Front-office and field function that works to attract and retain customers in the bank. Engaged in customer relationship management, recruiting new customers, customer care, business strategy/ planning, product development/ refinement, benchmarking and market intelligence

Personnel recruitment, development, management and succession

Functional area Key functions


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4. FinanceAccounting, financial planning, treasury management, and financial reporting.

6. Risk Management/ Internal Audit

5. Credit Control Credit/ loan assessment, approvals, documentation and portfolio management

Continual risk assessment, coordination of risk management, internal audit.



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7. Legal, Corporate services & PR

Board affairs, legal relationships with other institutions, contracts and all other legal issues in the bank’s business.

The above brief only attempts to bring out typical functions in a commercial bank in Uganda. The actual structure of departments and units vary from bank to bank but somehow, the above functions are represented either within departments or as separate departments in every bank



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Uganda Retail Banks





MODULE COVERAGE


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The structure of Financial MarketsIn this unit we will look at the structure of financial

markets. You will get to learn about the different players in the financial markets. Simply put, financial markets are markets in which funds are transferred from people who have an excess of funds to those who have a shortage. The efficiency of such markets determines to a very large extent the wealth of the nation.


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The structure of the financial systemPlayer1.Government

2.Central Bank

3.Other financial sector regulators

Main Role• Overall oversight of the financial sector, issuance

and oversight of fiscal policy and other related policies

• Monetary policy implementation, regulating and supervising banks and other deposit taking institutions, banker to government and commercial banks, policy advisor to government

• Issuing currency for use in the economy

• Regulating their respective financial service providers (like insurance, capital markets, other)


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The structure of the financial systemPlayer4.Retail Banks5.Non bank

Financial inst6. Investment

Banks

7.Merchant banks

8. Dev. Banks

9. The accounting profession

Main Role• Offering a full range of banking services to the public • Offering authorized deposit and loan services to the

public• Advice to clients on investing; investing funds on behalf

of clients, investing funds of their own in the money and capital markets

• Financing trade and business transactions, offering relevant advice and (more recently) some investment banking activities

• Long term funding (loans and equity) to viable businesses

• Oversight and regulation of the activities of accountant and external auditors, to ensure that FIs, like other businesses, produce reliable audited financial reports


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The structure of the financial systemPlayer10. Forex Bureau11.Credit Reference

Bureau

12. Institutional investors

13. Insurance companies

14.Factoring and Invoice discounting companies

15.Debt collectors 16. Rating Companies/

Agencies

Main Role• Buying and selling foreign currencies• Keeping a comprehensive database of borrowers, from which

credit history of each person or organization included therein can be compiled and communicated

• Long term investments by way of loans or equity, usually in hard currencies

• Insuring businesses and persons against various risks

• Financing businesses by either collateralizing their invoices for loans advanced to them or discounting such invoices for cash

• Collection of debts on behalf of financial institutions and other creditors as assigned

• Rating borrowers and other business organizations, including financial institutions, for public or specific consumption


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The structure of Financial MarketsFinancial markets can be classified on the basis of several

parameters:1. The nature of the financial securities traded (primary

versus secondary markets)2. Forms of organization (organized exchanges versus

over-the counter markets)3. Maturity of the financial instruments traded (capital

markets versus money markets)4. Forms of trade intermediation (quote driven dealer

markets, order-driven markets and brokered markets).


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Debt and Equity markets• A company or government can obtain funds from the financial

system in two ways. The most common one is to issue a debt instrument such as a bond.

• A bond is a contract by the borrower to pay the holder of the instrument fixed shilling amounts periodically (interest) and a final payment on maturity.

• The bond market is also where interest rates are determined. This is the reason why bond markets and interest rates are usually covered together. Bonds can be used by the central bank to manage the supply of money in the economy and to control interest rates.


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Primary and secondary markets• A primary market is a market in which new issues of a security

such as a bond or stock are sold to the initial buyers. • A secondary market is where securities that have been

previously issued can be resold. • The investment banks which we saw as part of the financial

system play the role of assisting in the sale of securities in the primary market. This is because initial issues may not be well known and the investment bank may guarantee their price to the issuing company i.e. pays off the issuer at a certain price, and does the selling to the public. This process is known as underwriting.


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Exchanges and over the counter markets• Secondary markets can be organized in two ways. One

is to organize exchanges where buyer and sellers of securities meet to buy and sell the securities. The Uganda securities exchange is such a market.

• The other method is to have an over the counter (OTC) market in which dealers at different locations who have securities stands ready to buy and sell securities over the counter to anyone who goes to them and is ready to pay their price.


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Money and capital markets.• The money market is a financial market in which

only short term debt instruments (generally those which mature within a year) are traded. Capital markets is where securities with longer term maturities are traded


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Uganda Retail Banks





MODULE COVERAGE


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The Credit Reference Bureau• The need for establishment of credit reference services in

any financial system arises because of information asymmetry between lenders and borrowers.

• Borrowers do not always tell the lender whole truths about their financial position, especially their credit history and any other indebtedness.

• The idea of the CRB is that an independent third party, with accurate and impeccable information system, will act as a referral point for all credit information about persons who borrow.


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• What is a Credit Reference Bureau (CRB)?The Financial Institutions Act (FIA) 2004 defines a

credit reference bureau (CRB) as a legal entity established as a company that allows financial institutions to exchange information on their clients’ repayment history and debt profiles and which compiles a database that collects, stores, consolidates and processes information related to persons, companies and enterprises.


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The Purpose of a Credit Reference Bureau • Credit reference bureaus collect and assemble

personal and financial information on individuals and businesses. Besides the financial sector, data is sometimes supplied from entities such as utility providers like UMEME, external debt collection agencies, public institutions such as the Registrar of Companies and the courts (i.e. public records) where the consumer or business has or has previously had relationships.


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The importance of a Credit Reference Bureau A credit reference bureau acts as a giant ‘storage

facility’ or ‘search engine’ for borrowers’ credit information, providing a centralised database of borrowers’ credit history and activities. The primary information that is on the database is supplied by participating institutions (PIs) – commercial banks, credit institutions and micro finance deposit-taking institutions – that are licensed and regulated by the Bank of Uganda.


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The importance of a Credit Reference Bureau Credit reference bureaus are also vital to our economy as they:

• Allow for timely access to credit• Allow consumers and commercial entities to buy now and pay later• Help participating institutions to assess the credit risk so that they are

able to extend loans• Help participating institutions keep the cost of borrowing down by

not having to raise charges or interest rates to compensate for the poor payment behaviour of a few borrowers

• Help credit grantors exclude non-performing clients from the process• Give individuals access to credit without them having to save the full

amount before they can buy• Increase the level of economic activity in the country


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How a Credit Reference Bureau specifically helps a borrower• By maintaining a healthy credit record, and maintaining timely

repayments, the credit reference bureau is able to develop a positive profile or a history of how you manage credit - this is known as reputational collateral.

• If this information is not shared it remains secret and other lenders never get to know that you are a good client. Your healthy credit habits and your loyalty to repaying your loan agreements should be rewarded.

• Your credit report becomes your collateral as lenders develop faith to lend more based on how well you have repaid others in the past. In more and more cases around the world collateral is being done away with as loan providers rely on credit information and credit profiles to conduct unsecured business lending decisions.


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Financial Cards and how they work• A financial card is used to verify your identity. The CBR uses

biometric technology to store your photo and fingerprint information. The data is stored on a smart card – a plastic card with an electronic memory chip inside with your information on it.

• The card is an instant information tool for loan providers. It stores information about you including your name, address and other personal details and gives you a unique identification number, so no-one can pretend to be you and access a loan in your name.

• The card will always be required when you have dealings with the credit reference bureau in Uganda, or when a lender needs to inquire about you. The card and your fingerprint work together; one is the lock, the other is the key.


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The necessity of a Financial Card in Uganda• Existing forms of identification – such as VAT number, TIN number or driver’s

license number – are not available for all borrowers across the regulated financial sector.

• Participating institutions want to give people a sure way of proving they are who they say they are.

• The financial cards can assist with financial security, help tackle identity fraud, prevent illegal activities, and most importantly ensure that borrowers are able to have their own identity in the financial sector.

• If your repayment history is good and that information is not linked to your profile, you only have credibility with the participating institution where you have the loan. However, other institutions do not know that you are good borrower because your records are not shared.

• Identity numbering in a financial sector assists greatly with protecting your reputational collateral and enables you to get the recognition you deserve.


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The privacy and confidentiality of personal data with CRB1. All information from the CRB is encrypted i.e. is locked and cannot be accessed at all except

with permission. The service provider also has strong firewalls to protect their system from intrusion.

2. The system is also protected through the use of passwords. Only institutions with a license issued by Bank of Uganda can view information shared on the CRB.

3. Borrowers are given the opportunity to express their freedom of choice by not consenting to have their data shared with the CRB when they apply for a loan.

4. The Financial Card (FC) is a unique form of identification of the borrower that holds details about an individual data from the chip is only readable using the card reader supplied by the CRB.

5. To avoid any doubt, the only data that will appear on the memory chip able to be viewed by PIs are: the borrower’s name, financial card number and fingerprints.

6. The CRB is regulated by the Bank of Uganda to ensure that it renders a satisfactory service, according to the law.


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• Consumer consent According to the Financial Institutions (Credit Reference Bureaus)

Regulations, 2005, consumers that are in default on any loan will have information recorded on the CRB. Your credit information never goes into a consumer credit reference bureau database without your knowledge.

• Length of time data to stay on the CRB in UgandaCompuscan CRB Limited, the credit reference bureau licensed by

Bank of Uganda, shall maintain a historical database covering a five year period for the purpose of providing detailed credit information, and shall keep the database for a period of not less than ten years.


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The importance of keeping loan repayments up to date• Loan providers will want to offer you more credit if you keep your loan

repayments up to date by paying them punctually and consistently. This might entitle you to get better offers from more loan providers in the future. On the other hand, if you do not keep your repayments up to date, loan providers will be less likely to want your business, and may demand higher interest rates, or may even decline your application.

• The CRB only provides credit information to institutions regulated by the Bank of Uganda. These institutions include all commercial banks, credit institutions and microfinance deposit-taking institutions.

Effect of a bad rating at an MFI on CRBThe CRB will not know why you have been turned down for credit because that is

a lender’s decision. Only the loan provider with which you have made the application can tell you why your application was declined.


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Challenging information on the CRB, if it is incorrect• If you are certain that specific information about you is being stored at the CRB,

and it is affecting your ability to get credit, you should lodge a formal dispute with the credit reference bureau. It must respond to your request within 20 business days - either to correct the report for the data item requested or to prove their data sources to you.

• If your dispute is found to be correct and the CRB had incorrect information, then all loan providers who previously received this incorrect information shall be notified

• If your claim is unfounded then you may be required to pay for the costs of the investigation incurred by the institution and the CRB. During the period of dispute all lenders will know that your credit profile is under dispute if they visit your information for any reason.

How to contact the Credit Reference Bureau• Details about how to contact the CRB is available at the participating institution

branches (all banks, CIs and MDIs) where you borrow


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Uganda Retail Banks





MODULE COVERAGE


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A couple of years ago, bankers sat in their offices and waited for whoever wanted the services to come. Largely, the products were few, generic and standardized. No bank that wants to grow can maintain this old fashioned business approach today.


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The more progressive banks have tried to improve on or introduce personal financial services. Among the steps in this direction are the introduction/ refinement of:

• Customer information desks in the banking halls, where existing and potential customers can be guided on how to access different services of the bank

• Appointment of relationship managers or personal bankers for business accounts and some personal accounts

• Moves to target high net worth individuals through preferential/ premier or executive banking facilities which offer more convenience and variety of services for individual willing to pay a fee.

• Creation of business/ executive clubs for account holders who are business people or executives – and availing certain useful, tailored services to them through these clubs


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• Tailored deposit products that focus on defined market segments – like the youth savings accounts for youths, school fees accounts for parents


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1. Internet and mobile phone banking2. Easing of the issue of ATM/ debit cards for easy access to funds on account3. Tailored personal loan products for housing, assets and other personal

expenses4. Offer of remittance services to individuals through agency of money transfer

organizations


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Uganda Retail Banks





MODULE COVERAGE


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Trends in the Financial services Industry In the financial services industry as is in other vibrant

sectors of the economy, there is a need to keep abreast with trends.

You must know what is going on both at local and global level. There are a number of factors which drive change in the financial services industry and we will be looking at some of them in this section. We hope that this will give you a general oversight of where the sector is moving as well as some of its challenges.


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CompetitionIn the past banks were few

relative to the population and therefore largely operated in a sellers’ market. This has changed. There are now more banks with an array of service points including branches, points of sale and ATMs


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Customer awareness – While on the supply side competition intensifies,

customers are becoming ever more aware and educated about banking services and therefore they are demanding more than they did in the past in terms of customer care, better pricing and better product features. In Uganda, banking has been demystified and thus the service providers have to strive for excellence.


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Products innovation – The last decade has seen swift moves in the area

of product development and refinement as many banks try to outdo competition by offering products which are responsive to their customers.

– In the banking sector, there has been less in innovation than a mere copying of products. All this is done in an attempt to capture more customers through more responsive offers.


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Differentiation Attempts at product differentiation by banks do not as

yet seem to have produced advantages for the respective banks. Often, differentiation attracts swift imitation from others.

Rather than strive to differentiate their products, it appears that the real competitive space for Ugandan banks still lies in excellence of customer care (which all financial institutions give lip service in advertising and mission statements but very few translate into daily operations).


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Regulation – On the international scene, deregulation over the past two

decades culminated in the credit crunch (2008) which arose out of reckless lending.

– In Uganda, the risk-based supervision that BOU adopted after 2004 has ensured that the financial sector, though it still has challenges, is largely safe and sound systemically.

– Whereas the rest of the world was relaxing regulation, Uganda instead tightened (having learnt bitter lessons with the rapid bank failures of the late 1990s).

– This was part of the reason that the credit crunch did not severely affect Uganda earlier.


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CollaborationIn some cases, banks collaborate to

tap mutual synergies and beat other players. Examples include ATM access sharing, agency in branch operations, joint financing of customers’ business projects and, more recently, involuntary collaboration through information to the CRB that can be freely shared.


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Leverage of technology• Increasingly, banks are using

electronic technology both to reach more customers and to lower their cost of service. Examples are internet banking, point-of-sales (POS) devices for remote/ rural customers, and banking through mobile phones. It is evident that in the future, technology will play an increasingly vital role in banking operations.


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Consolidation Growth drives have led to some acquisitions,

among them the following:• Nile Bank by Barclays• UCB by Stanbic• Commercial Microfinance by Global Trust Bank• Uganda Microfinance Ltd (MDI) by Equity Bank• Faulu Uganda by Opportunity International, now

Opportunity Bank


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END

Introduction to financial services 2

Business

Transcript of Introduction to financial services 2