Earlier, the Uganda Retirement Benefits Authority also approved UAP as a pension fund management services provider. On Sept.12, the company officially launched its Unit Trust Funds through which it hopes to raise Shs 3 billion in the next four months. Chief guest Dr. Luis Kasekende, the Bank of Uganda deputy governor, read the following speech on behalf of Tumusiime Mutebile, the BoU Governor.
I would like to begin by thanking UAP Financial Services, and in particular my friend Prof. Gordon Wavamunno, the chairman of UAP Insurance, for according me the honour of being the chief guest at this breakfast launch of the UAP Unit Trust Funds in Kampala.
As the Governor of the Central Bank, I am always pleased to see new savings products brought onto the market in Uganda. As such, I offer a warm welcome to the UAP Unit Trust Funds and congratulate UAP Financial Services for this valuable initiative.
The entry of UAP Unit Trust Funds into the Ugandan financial market marks an important milestone in the development of the financial services industry in two salient respects. The first pertains to the diversification of the financial sector, while the second pertains to the increasing regionalization within East Africa of the financial services industry.
Although Uganda's financial system has recorded very robust growth since the start of the millennium, this growth has been dominated by commercial banks. Growth of the non-bank financial sector has been disappointing.
Excluding the NSSF, non-bank [entities] held only 3% of the total assets of all Uganda's financial institutions in 2010. As a consequence, access to what should be important functions of the financial system outside of commercial banking, has remained limited in our economy.
For example, long term finance for capital investment by the corporate sector is very scarce because there are few financial institutions that can mobilize long term funds. The lack of diversification is also an impediment to raising the domestic savings rate, which is a prerequisite for funding high rates of investment in a sustainable manner over the long term.
Fortunately, prospects for growth in the non-bank segments of the financial sector have improved, not least because of important legislative reforms. Prominent among these reforms is the liberalization of the pensions industry, for which legislation is currently being finalized.
I am confident that this liberalization will provide a powerful stimulus to the growth of the pensions industry and other long term savings products. Reputable firms, including UAP Financial Services, will be licensed and regulated by the Uganda Retirements Benefit Authority to offer pensions products to Ugandans in a competitive market.
The growth of the pensions industry will, in turn, boost demand for the sort of financial products, such as Unit Trust Funds, which are suitable vehicles for the investment of pension funds. With more demand for long-term financial assets, reputable private sector companies will have more alternatives to loans, if they need to mobilize long-term investment finance - for example by issuing equity or corporate bonds.
I hope that the entry of UAP Unit Trust Funds provides a good sign for the growth of capital market products and the diversification of our financial services sector away from an overdependence on commercial banking. Although the non-bank financial sub-sector is currently very small in Uganda, there is clearly great potential for rapid growth over the next decade.
The future of the Ugandan economy lies in closer integration with our partners in the East African Community (EAC). Regional integration offers opportunities to expand markets to exploit economies of scale and strengthen competition.
It should, therefore, stimulate all sectors of the economy to become more efficient. Financial markets are on the forefront of regional integration. Several commercial banks from within the East African region have established operations in all or most of the Partner States in the EAC.
The expansion of UAP Financial Holdings illustrates that the non-bank financial sector has also much to gain from adopting a regional approach to business. UAP Holdings has subsidiaries in Kenya, Uganda, Rwanda and South Sudan.
A key challenge for policy makers in East Africa will be to ensure that finances can flow freely across boarders within the EAC and that the regulatory frameworks in each of the Partner States guarantee a level playing field for all investors in the financial services industry. Once again, I would like to congratulate everyone involved with UAP Financial Services for their efforts to develop the Unit Trust Funds and bring it to the market in Uganda.