This document discusses trends in the financial services industry in Uganda. It outlines several key trends, including increased competition between financial institutions as more banks enter the market. It also notes that customers have become more aware and are demanding better services. Financial institutions are innovating new products to try to differentiate themselves and capture more customers, though true differentiation has been difficult to achieve. The document also discusses the role of regulation, collaboration between institutions, the increasing leverage of technology, and some consolidation in the industry through acquisitions.
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Introduction to financial services 6
1. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Introduction to Financial Services1
2. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Types of Financial Institutions and their Respective Roles
Uganda Retail Banks
The Structure of Financial Markets
The Credit Reference Bureau
Trends in Financial Services Industry
Personal Financial Services
MODULE COVERAGE
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3. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Trends in the Financial services Industry
In the financial services industry as is in other vibrant
sectors of the economy, there is a need to keep abreast
with trends.
You must know what is going on both at local and global
level. There are a number of factors which drive change in
the financial services industry and we will be looking at
some of them in this section. We hope that this will give
you a general oversight of where the sector is moving as
well as some of its challenges.
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4. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Competition
In the past banks were few
relative to the population and
therefore largely operated in a
sellers’ market. This has
changed. There are now more
banks with an array of service
points including branches,
points of sale and ATMs
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5. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Customer awareness
– While on the supply side competition intensifies,
customers are becoming ever more aware and
educated about banking services and therefore they
are demanding more than they did in the past in
terms of customer care, better pricing and better
product features. In Uganda, banking has been
demystified and thus the service providers have to
strive for excellence.
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6. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Products innovation
– The last decade has seen swift moves in the area of
product development and refinement as many banks
try to outdo competition by offering products which
are responsive to their customers.
– In the banking sector, there has been less in
innovation than a mere copying of products. All this
is done in an attempt to capture more customers
through more responsive offers.
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7. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Differentiation
Attempts at product differentiation by banks do not as yet seem
to have produced advantages for the respective banks. Often,
differentiation attracts swift imitation from others.
Rather than strive to differentiate their products, it appears that
the real competitive space for Ugandan banks still lies in
excellence of customer care (which all financial institutions give
lip service in advertising and mission statements but very few
translate into daily operations).
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8. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Regulation
– On the international scene, deregulation over the past
two decades culminated in the credit crunch (2008)
which arose out of reckless lending.
– In Uganda, the risk-based supervision that BOU adopted
after 2004 has ensured that the financial sector, though
it still has challenges, is largely safe and sound
systemically.
– Whereas the rest of the world was relaxing regulation,
Uganda instead tightened (having learnt bitter lessons
with the rapid bank failures of the late 1990s).
– This was part of the reason that the credit crunch did not
severely affect Uganda earlier.
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9. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Collaboration
In some cases, banks collaborate to
tap mutual synergies and beat other
players. Examples include ATM
access sharing, agency in branch
operations, joint financing of
customers’ business projects and,
more recently, involuntary
collaboration through information to
the CRB that can be freely shared.
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10. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Leverage of technology
• Increasingly, banks are using
electronic technology both
to reach more customers
and to lower their cost of
service. Examples are
internet banking, point-of-
sales (POS) devices for
remote/ rural customers,
and banking through mobile
phones. It is evident that in
the future, technology will
play an increasingly vital
role in banking operations.
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11. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Consolidation
Growth drives have led to some acquisitions,
among them the following:
• Nile Bank by Barclays
• UCB by Stanbic
• Commercial Microfinance by Global Trust Bank
• Uganda Microfinance Ltd (MDI) by Equity Bank
• Faulu Uganda by Opportunity International, now
Opportunity Bank
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At the end of this unit, you should be able to explain some of the recent trends in the financial services industry locally and internationally.
As banking and financial services become more commoditized and less distinct from the rest of the business sector, dynamics of banking are fast changing. Competition from previously unexpected sources, recent experiences with the credit crunch, increased customer awareness, intensifying competition within the banking industry and a drive to capture ever more market share by each bank are all producing emerging trends that can be summarized as follows:
As is the case with in other economic sectors, bank customers/ clients now reign in the banking sector. Customers have wide and increasing choices and banks are in ever increasing intense competition for deposit, lending and other products.
After BOU lifted a moratorium for new banks in 2007, a number of foreign banks entered the market, intensifying competition further. Among these was Equity Bank, Kenya Commercial bank, Global Trust Bank, Ecobank, UBA, ABC Capital Bank, Imperial Bank and Bank of India.
Competition is also emerging from previously unfamiliar sources. The Micro Finance Institutions (MFIs), which used to be considered as sidelines of the financial markets, are fast mainstreaming into the financial services market. Mobile phone companies are now offering both savings accounts (albeit called by other names) and fund transfers, and they are proving to be far more convenient and efficient than most banks.
The MFIs and MDIs have, generally, done a better job of this than most banks by focusing their new product development on customer needs and realities. The MFIs have, generally, developed their products after objective market surveys to really understand what the market needs, wants and will buy.
The main causes of the high default rates were over-indebtedness of borrowers in the developed markets in comparison to their repayment capacity and collateral. This resulted from increased borrowing as financial institutions aggressively sold loans to the public. Apparent incentives encouraged people to take out difficult mortgages with the intention of refinancing them in future. With the fairly high interest rates and sudden drops in housing prices, however, it became difficult for home owners to refinance their mortgages. A downward spiral began that rocked the international economy. Thus deregulation, which is good in the case of price setting, was also a cause of the global financial crisis. The regulatory framework failed to keep pace with financial innovation; the laws were changed and enforcement weakened in certain parts of the financial system. Keener prudential regulation, including aspects that protect the consumer, is therefore necessary although direct price regulation is not desirable.
