Tom Magumba
20 May 2008
Kampala — Players in the banking sector are focusing on widening their customer base beyond the current niche as the race for Uganda's unbanked population takes centre stage following the entry of Equity Bank into the market.
Equity Bank, last month, expanded its tentacles into Uganda with the acquisition of Uganda Microfinance Limited, in a deal expected to further stir the banking sector.
While the deal, according to the Chief Executive Officer of UML, Mr Charles Nalyaali, is yet to be completed pending regulatory clearance from Bank of Uganda and the Capital Markets Authority of Kenya, there are indications that industry players are positioning themselves for a fierce competition.
"It is a stimulus to the whole market but also an opportunity for us in the industry to fine tune our operations and increase our market share," Mr Mathias Katamba, Finance Trust managing director said of Equity's entry.
He said it is a known fact that Equity's micro finance model has revolutionised banking in Kenya but this is a different market, so they [Equity Bank] have something to learn, suggesting that Equity Bank may not be headed for a soft landing.
Equity Bank is preparing to inject Shs70 billion into UML that already has seven branches in Kampala and 20 upcountry branches Mr Daniel Nsibambi, the communication manager of Stanbic Bank Uganda said the coming of Equity Bank would reawaken players to diversify their marketing drives towards customer retention and more product solutions.
He however seemed boisterous on Stanbic Bank's position. "Stanbic Bank already has an unshakable foundation in commercial banking," Mr Nsibambi said. "We can only become keener on introducing more customer tailored solutions depending on the prevailing market forces."
Equity Bank is the second Kenyan Bank to make entry in the Ugandan market in a space of 6months. Kenya Commercial Bank (KCB) opened its doors to the public in November last year and has since opened two branches and promised to open five more branches by close of the year.
Competition in the banking industry has taken on a new trend after Bank of Uganda (BoU) lifted a moratorium on licensing banks in 2005.
BoU has since registered five new banks in a space of one year. The banks include United Bank of Africa (UBA) and Continental Trust Bank from Nigeria, KCB and Fina Bank from Kenya, and Housing Finance of Uganda, which is taking to commercial banking.
Banks in Uganda have been reluctant to lend to low-income earners, creating a gap that microfinance institutions have exploited to reap big mainly from high interest rates. It is estimated that Uganda has about 166 microfinance institutions registered with the Microfinance Association of Uganda.
Equity Bank's business model of focusing on low-end customers is largely cited as the key driver behind bringing Kenya's low income population into the formal banking. If replicated here, the model could destabilise the microfinance industry besieged with high exorbitant rates of between 30 and 40 per cent.
Equity Bank presence in the market is also likely to bring hope to farmers who have often struggled to secure lending for agriculture.
The Ministry of Finance has oftentimes lobbied commercial banks to diversify into lending the agricultural sector, which employs about 80 per cent of Ugandans. However, Banks have remained reluctant citing high risks in the market.
But Equity Bank's presence in the market is likely to change this considering that the bank is one of Kenya's leading lenders in the agricultural sector.
The bank recently partnered with Alliance for a Green Revolution in Africa to provide smallholder farmers and small agricultural enterprises with the financing they need to break out of poverty and build viable businesses.
At a press conference in Kampala to announce the acquisition Equity bank Chief Executive officer Dr James Mwangi said the Ugandan market was still virgin offering many opportunities for financial investment.
"Medium income earners are the cornerstone of our business so our strategy would niche on giving lower interest rates," he said.
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