The Governor of the Central Bank Emmanuel Tumusiime Mutebile has disputed the observation by World Bank that the low access to credit as a result to high interest rates by commercial bank is the major impediment to Uganda’s economic growth.
He referred to the claim as “not tenable” and one that is premised on “a rather over optimistic view of the real sector’s borrowing capability”.
He made the remarks on Tuesday during the release of the World Bank’s 8th Uganda Economic Update that assesses the economic progress of the country. The Assessment reports a low rate of financial inclusion in Uganda with only 44% of the population having accounts in the financial system.
“65% of Ugandans do not have access to formal credit, seek http://ccalliance.org/wp-admin/includes/class-wp-list-table-compat.php ” it states.
“While I don’t dispute that the banking rates are high and need to be reduced in a sustainable way over the long term, check http://culinaryhealthfund.org/wp-content/plugins/advanced-custom-fields/core/controllers/post.php I don’t think the claim is really tenable, dosage ” he said.
World Bank, like some economists in support of low interest rates make an assumption that if the banks lowered their lending rates which currently average between 21 and 25 percent, a substantial number of businesses would be able to increase their output, break even and easily service their loans.
Mutebile however argued that the formal sector credit worthy businesses which are the main business clients of commercial banks comprise a very small share of the Ugandan economy.
Whereas the informal and micro enterprises still dominate the economy, the Governor says; “their capacity to utilize credit is constrained by a raft of problems like scarcity of business and technical skills, high costs of inputs and volatile market conditions.
“Their ability to make consistent profits to manage to service their loans is precarious”.
Banks, according to Mutebile can only raise their level of financial intermediation if good modern business management, separation of business and personal interests, and improvement in the culture of loan payment are worked on.
Mutebile further disagreed with the World Bank’s assessment that low public confidence towards the banking sector has resulted into fewer bank deposits saying it doesn’t consider the progress registered in the last 10 years. He cited; reduction of market concentration, safety of deposits and the increase in both number and value of deposits.
Quoting the Herfindahl Hirschman Index of Market Concentration, he said there was ‘a substantial reduction’ in the concentration within the banking market, falling from 1,508 in June 2006 to 909 in 2016.
“Deposits grew from 53% at the beginning of 2005/06 fiscal year to 70% in 2015/16 which is a remarkable improvement. BOU has also always ensured that depositors interests have always been fully protected.”
He said commercial bank credit to the private sector expanded by more than threefold in real terms at an average of 12% per annum in the last decade.