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East African Payment System To Become Seamless Across The Continent

The Central Banks in the East African Community shall be exploring ways of transforming the East African Payment System (EAPS) and linking it with other payment solutions on the African continent to enable the seamless transfer of monetary value across the continent at both retail and wholesale levels, Dr. Louis Kasekende, Deputy Governor, Bank of Uganda, has said.

The Deputy Governor made the remarks on Tuesday at the launch of the Absa SME Academy 2019, at the Kampala Sheraton Hotel.

“This should support intra African trade and further support the growth of our commercial enterprises,” Kasekende  said.

He advised  entrepreneurs  to have  a  vision  and  belief in  the possibilities  of  creating  large  enterprises of  enduring  value.

“You must have the desire and strategic foresight to grow the business firm from its small size start up to a medium or large scale. Surprisingly, this vision is largely missing amongst SMEs  with  the latest  available  survey  data1for 2015 revealing that the overwhelming majority  of  enterprises  in  Uganda  did  not  expect  to  grow to the extent of employing at least 5 people within a five year period,” he said.

He added: “This trend needs to change and we are not short of examples of entrepreneurs that have started small and scaled the heights. The Late James Mulwana and the Mulwana Group of Companies is a case in point.

The second message is to encourage each one of us to formalize our business units.”

He revealed that formalization  may  include  at  the  bare  minimum,  registration  and licensing  of  the enterprise  with  the  respective  regulatory  authority  or  local government,  setting  in  place  systems  for   work  processes   and  decision making, and  the  employment  of  professional  staff.

“These  professional  staff may  not  necessarily  be  permanent  employees,  especially  for  the  small  scale enterprises, but rather qualified professionals whose counsel should be sought to  guide  any  critical  business  decision,” he said, adding that formalization  may  infer  several benefits such  as enabling  your  access  to  opportunities  in  public  and  private procurements,  including  taking  advantage  of   the  national   local   content regulatory provisions.

In  addition, he said,   founders  or  owners  of  business  enterprises  should  be  ready  to detach their personal finances from the business entity. However, this is rare.

Available  World  Bank  Enterprise  surveys2data  reveals  that  Uganda  has  a disproportionate    number    of    medium    to    large    scale    firms    as    sole proprietorships relative to the Sub-Saharan African average. This means that the business owner bears the full impact of a business loss.

“This I believe can change with entrepreneurship training such as in this Absa Academy, so that a larger number of business enterprises can stand a higher chance of transcending the life of the founder or owner,” he said.

He noted that one  avenue  for  financing business  growth that  remains  largely  untapped in Uganda is  the  capital  markets with  instruments  such as  private equity placements. 

“This  financing  model  remains  constrained  largely  due  to the informality  of  businesses  and  reluctance by  business  owners  to  disclose information,  yet  transparency  and  accuracy  of  business  records  is  a  critical issue  for  anyone  to  buy  equity  in  any  business  enterprise,” he said.

He said the issue of high lending interest rates by commercial banks remains topical and several initiatives to sustainably address it are  ongoing.  “Some of the interventions include implementation of  the  national  financial  inclusion strategy that is spearheaded by the Bank of Uganda; the public infrastructure investments and reforms in the financial sector and other arms of government or agencies like judiciary and land registry,” Kasekende said.

He added: “These interventions should result in a lower cost of doing business for the economy as a whole. The supervised financial institutions are  also  adapting  their  business  models  and  optimizing technological  solutions  to  reduce  on  their  operating  costs  which  should overtime result in lower interest rates.”

Beyond lending interest rates, Kasekende said, “I must express our displeasure at the relatively high  charges being imposed  on  some  of  the  financial  solutions.  A  case  in point are the  mobile money  charges for sending  monetary  value  within  the same  network  in  Uganda,  which  are  currently  about  double  the  applicable rate  in  Kenya  and  Tanzania,  if  the  local  shilling  rates  are  converted  into  US dollar terms.”

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