As banks increasingly automate their operations, Bank of Uganda governor Emmanuel Tumusiime Mutebile says they should use automation to reduce high lending rates.
Currently, there are many software applications that serve the loan origination and credit assessment requirements of traditional and non-traditional lenders.
Financial institutions are increasingly mindful of improving their practices in these areas to increase efficiency, decision speed and productivity, and to enhance their customer experience, through automation — the latest buzzword in banking. Through automation – use of technology – banks lower their cost of doing business.
As such, banks should pass on the benefits to their clients by reducing their lending rates.
Addressing delegates during third Annual Bankers Conference yesterday at Kampala Serena hotel, Mr Mutebile said: “Access to credit is not the ultimate binding constraint on economic growth.”
Mr Mutebile added: “We must think holistically about the challenges holding back the power of finance to transform our economy. Proper diagnostics must reveal the problems that constrain agricultural finance before we devise durable solutions. We must examine the borrowing capacities of the businesses in our sector.”
Mr Mutebile challenged financial institutions to rethink their views of bankable projects to design solutions for potential borrowers. Mutebile however, noted that formal sector creditworthy businesses which have been the main clients of commercial banks, comprise a small share of the economy.
Fortunately, Mr Mutebile said some financial institutions have started tackling these problems through business incubation programmes.
“Through automation and adoption of new technologies for delivering financial services, it is possible for banks to reduce their operating costs and pass on the savings to borrowers through reduced lending rates,” he said.
Mr Patrick Mweheire, chairman of Uganda Bankers Association (UBA) who is also the chief executive officer of Stanbic Bank Uganda, said, “Our current strategy period is 2019-2021 and we are focusing on the following: championing initiatives intended at driving down the average industry cost of delivering financial services in Uganda,” he said.
Lending to agriculture
Mr Mweheire said in the last decade, there has seen improvement in lending to agriculture from Shs241.7 billion in 2009 to over Shs1.6 trillion in early 2019. Correspondingly, the share of lending to agriculture as percentage of total private sector credit has more than doubled from 5.2 per cent in 2009 to 12 .9 per cent in 2019.