Banks operating in Uganda have always complained of one thing: that the country's financial sector is too shallow for many of them to make any meaningful gains.
It is for this reason, many bank officials say, that a number of them have gone for the easy way out - trading in the risky free government securities, engaging in the brisk and yet volatile forex market, and also lending money, usually in dollars, to faithful customers.
There is a new avenue that banks are signing up to though: trustee and custodial services. With the impending liberalisation of Uganda's pension industry, banks are confident that the numerous saving schemes in a number of companies, offer a good gold mine for them to make some extra cash.
It is for this reason that a number of banks have already acquired licences from the Uganda Retirements Benefits Regulatory Authority (URBRA), to act as custodians, while insurance firms have targeted the role of administrators.
URBRA Chairman Andrew Kasirye said banks were assured of the longer term deposits. "That's why NSSF has been a big dog in the sector with volumes of cash at its custody. Banks need these benefits deposits to lend out," Kasirye told this paper.
Martin Wandera, a consultant in labour markets, says it is understandable why banks are eying these pension schemes.
"There is 'free money'," he told the Observer. He explained: "This money will improve on their liquidity. They will charge pension schemes like NSSF and others that will come into the sector for receiving money on their behalf. This will give them a lot of money." Uganda is bracing itself for a liberalised pension industry. While discussions to liberalise the pension industry have been around for more than a decade, the recent dash by financial institutions to acquire licences could be an indication that the long wait is almost over.
To Kasirye, opening up the sector means bringing on board a huge number of the employees who have not been contributing because their employers don't meet the criteria of five employers and above.
As proposed in the new bill, even companies with less than five employees will be able to contribute to pension schemes.
"There is a lot of money and banks are assured of using that money in their daily work. Remember, its long-term money so they will engage in long-term investments, lend, and name it," Wandera said.
At least four banks have received licences from URBRA to offer custodian services: KCB Uganda, Housing Finance, Stanbic, and Standard Chartered.
A custodian, among other duties, will hold the funds, assets and investments of the benefits scheme, receive contributions made to the scheme, possess and transfer money, and collect dividends and income from the investments of the scheme.
"Banks will have the opportunity to invest this money, but under the regulation, we (as URBRA) shall have a say on how this money will be invested," Kasirye said. There are at least 27 private pension schemes that URBRA has licensed.
Some experts are worried that banks might ignore their traditional role of banking, and deny customers some crucial services. "Banks may not play their role of financial intermediation. Incentives to deposits may fall including interest because there are other channels where they can get liquidity from," said Lawrence Bategeka, the acting principal and research fellow at Makerere's Economic policy Research Centre (EPRC).
Wandera's fears go even deeper. He believes that given the complexity of this process, workers will be tempted to pass on the responsibility of investment advice to financial experts, who will be acting as fronts for banks and insurance companies.
"As one can predict, fraud, manipulation and exploitation will certainly be part of the products of these unequal relationships," he said.