Martin Luther Oketch
23 September 2008
Bank of Uganda governor has criticised lending at almost zero interest rates under the Prosperity for All programme, saying it is likely to counter free growth and strengthening of the financial market.
"The government does not have enough money to give everybody at a subsidised price at low interest rates," Mr Tumusiime Mutebile, the governor of Bank of Uganda, said. "It is wrong to give money (loans) at a zero interest rate."
Speaking recently at the launch of the bank's five-year financial market development plan, Mr Mutebile said instead of zero lending, a predictable environment should be created to enable banks offer credit at affordable rates to the public.
"We must do what we can to ensure that the financial services we are making available to the people are at a reasonable cost possible through mechanism based on the market," he said.
Currently the government is implementing Prosperity for All as a national tool against poverty with subsidised interest rates on borrowed money. Some people have argued that money given out through the Prosperity for All programme should attract little or no interest.
The 5-Year financial market development plan is aimed at transforming the financial sector, expanding financial services and streamline the Prosperity for All through the existing financial channels in the country.
To address the current deficiencies in the regional financial markets, the monetary affairs committee, which consists of the Central Bank governors of the in the East African states, adopted a strategy of formulating a comprehensive five-year Financial Markets Development Plan for each of the East African states.
The committee in 2005 noted that East African states had made significant progress in promoting the development of financial sector, in areas of regulation and supervision, monetary and fiscal policies, and infrastructure development.
The major goals that the 5-year plan will seek to achieve are: harmonisation of the regulatory frameworks in the financial sector, infrastructure development, and increase in investor base among others. "This programme will ensure that the efforts are not to be duplicated, hence, avoiding wastage of the financial and resources," Mr Mutebile said.
He said specific areas emphasis will include bringing the unregulated market participants into the regulatory ambit. This will involve reforms in legal and regulatory environment as well as liberalisation of the pension sector, to foster competitive, and long-term financing.
Another challenging area that the plan is expected to address is extending financial services beyond the urban areas so that the rural areas can also enjoy the benefits financial markets offer.
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