25 December 2012

Uganda: Competition in Asset Financing Heats Up

Kampala — Competition in asset financing is beginning to heat up with more commercial banks introducing the product.

Out of the 25 commercial banks operating in Uganda, only seven banks offer the product with new competition expected to translate into better service delivery.

"Asset finance makes it possible for banking clients to acquire funds to acquire moveable assets without having to pledge their existing assets, but rather the asset being financed will secure the lending by the bank," Ronald Ssonko, ABF Manager at KCB Bank, said.

It is a cheaper financing option when compared to a normal bank loan given the tax benefits it avails you and the fact that it frees up a client's other assets for use on other financial obligations.

"The interest rate will not differ much from the traditional lending products, but in terms of the actual costs of finance, the tax benefits afforded to the client through asset based finance borrowing will always render it cheaper to finance acquisition of assets," he said.

The banking sector has seen slow growth in asset financing with the uptake from borrowers standing at a meager 4 percent.

The assets financed cover a broad spectrum to include marine, air and road transport vehicles, IT, Mining, Construction, Manufacturing and Print equipment.

Banks have attributed the low appetite in asset financing to the low levels of awareness by bank clients despite deliberate attempts to make known the availability of these products.

The problem gets compounded by the limited offering of the product by the available banks. KCB's Ssonko said in an interview that some form of structure is in place, though, to enable institutions and individuals acquire a range of business and personal assets under customized arrangements.

He added that of the 4 percent penetration rate, 95 percent of the deals that get are actually finance leases. The high risk business environment is also an obstacle to growth of asset financing according to Ssonko.

To ensure growth and increase asset financing uptake in Uganda, KCB is focusing on the SME and business segment, putting a new spin on delivery of their product with what they have called personalized expert customer service according to Marketing Manager, Jean Mugisha.

Because SME's needs are mainly around; cash flow management, debt servicing, capital for expansion; Asset Financing is the answer because it aids the business financing needs allowing them to focus on their core business.

"Our customers have reason to believe we can deliver on this promise as we have previously had regional recognition as East Africa' Best Bank in Asset Finance", she added.

Leasing is structured in such a way that an asset is purchased by the bank and made available for use by the client for a manageable monthly fee.

On completion of the agreed period and after paying the prescribed monthly repayments, the ownership of the asset will be transferred to the client.

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