MAMA Shamimah operates a small kiosk in Upper Kauga, a rural area in Mukono selling vegetables, bananans, salads and fruits and making a modest profit. She wants to put some money aside because she knows she cannot work forever, but she will not take her savings to a bank.
Rwebitakuri, a businessman in St Balikuddembe market, has made a heap of money in Ugandan shillings. He wants to protect his earnings, so he converts them into US dollars and invests in Southern Sudan.
Godfrey Sali, the Business Development at Kampala City Traders’ Association (KACITA), argues that keeping their money in commercial banks does not help them instead the financial institutions are the beneficiaries.
“Small traders, especially those not learned enough need not to save money in the banks because it is useless,” he said.
“You save with them, you don’t get anything but when you go to borrow they ask for high interest. We rather prefer to keep our money.”
Sali argued that most of the traders are not interested in listing in the stock exchange as a way of raising capital to expand their businesses. “Listing means that you have to be monitored by Uganda Revenue Authority.”
“That means you will be taxed more. In any case the costs of listing are high. Those brokers are so much sophisticated in that it does not surprise me that they caused the global financial crisis,” he claimed.
Investment funds for local businesses
The growing and developing nature of the financial sector is not giving small businesses many options of raising capita.
Faced by lack of credit worthiness among businesses and the high levels of non-performing loans in bank portfolios, commercial banks continue to maintain high interest rates on loans although they have slightly reduced over the years.
Relevance on banks as a source of investment funds is sufficient since they provide only expensive, short term debt financing.
The concentration of banks on urban areas has also constrained efforts to monetise savings. This has resulted in savings in rural areas being held in real assets such as land and animals leading to low local investments.
However, no one is going to solve the problem of local investment. It is asserted that private sector investment and growth are critical to development.
But for the private sector to invest, it needs access to local and foreign capital. And local capital comes from local savers.
Statistics estimate that over 70% of the rural population cannot access financial services. The only place for such people to save is under the mattress and in real assets. This has resulted in mall capital market in Uganda.
“Poor saving culture is bad because it reduces the return on the their money. If you are risk averse, you cannot earn returns. You have to consider the time value of money,” Hajji Twaha Kawaase, the Capital Markets Authority chairman, advised.
Indeed, this idle money under the mattress or saved in animals need to be channeled through the financial sector. This could be the major financial insititutions like banks, microfinance, Savings and Credit Cooperative Organisations (SACCOs), private equity firms or through the capital markets.
“While people want to borrow money, they still have a culture of fearing to save. People with periodic income should inculcate the saving culture in order to reduce the current poverty levels,” Hajjat Janat Mukwaya, the minister for general duties in the Office of the Prime Minister advised.
This will increase the saving ratios that will allow the youth to partake loans that will enable them start small and medium businesses. This will allow them employ more people.
The minister said a strong household saving rate is the creation of a strong economy, jobs, and ultimately lowers interest rates and inflation.
