[2008-09-17]  Banks Turn to Informal Sector
COMMERCIAL banks are battling out each other to grab the biggest chunk of customers in Kampala's thriving informal sector.

'Capturing the increasing demand for banking services,' 'taking services closer to the people,' and 'making banking affordable for SMEs,' have become the buzz words with all the major commercial banks rushing to have a foothold in Kikuubo, Shauri Yako and St. Balikuddembe markets(Owino) and in Kisenyi.


With the formal sector market nearly saturated, the dominant informal sector has become the new hotspot for the now competitive banking sector.

For several years, commercial banks ignored the informal sector, focusing on corporate clients.

But this year alone, Cairo International, Standard Chartered and the dfcu banks have all opened up branches in downtown, the centre of small-and-medium enterprises (SMEs).

They joined others like Stanbic that went there not so long ago. With SMEs accounting for up to 60% of the gross domestic product in Africa, the rush by banks to downtown Kampala is seen as a move by commercial banks to support the fast-growing SME sector.

"The roll-out of our products during September will enable us to significantly enhance our service to our SME customers in Uganda to further assist them in growing their businesses," said Harton Maliki, the Standard Chartered's value centre manager. However, the sector's growth has not started now because the informal sector has always been there.

When it comes to financing their businesses, SMEs have traditionally relied on borrowing money from families and friends rather than from banks. Few save with the banks.

"Sometimes one may need money at odd times and in huge amounts, yet the banks do not operate throughout the week.

"Sometimes they also limit the amount when withdrawing using the ATMs. This is sometimes an inconvenience. This makes most people in SMEs to keep money in their homes," explained Henry Wabomba, the proprietor of Namusisi and Sons Ltd.

Other traders agree. They think that banks need to be flexible in order to break into this sector.

This raises the question of whether the banks are offering SMEs support or they are looking for support from the sector.

Lifting the 10-year moratorium on licensing new banks was one of the factors for this 'mad-rush' for the unbanked masses.

Kenya's leading bank by customer accounts, Equity Bank, is expected to start its operations in Uganda soon with the recent purchase of Uganda Microfinance Ltd. Equity Bank rose to prominence by embracing the SMEs sector in Kenya.

Fina Bank, another Kenyan-based bank, is also expected to start operations in Uganda this year.

The bank plans to have its branches established mainly in places where SMEs are concentrated.

"Our focus is to be the SME bank of choice in East Africa. We want to be more visible to attract more customers and hence more deposits," Frank Griffiths, the managing director, told reporters in Kampala recently.

The Nigerian Global Trust Bank this year also bought Commercial Micro Finance Ltd, giving it full commercial bank status.

However, some people in the informal sector remain skeptical about the entrance of the high street banks into the informal sector. They are waiting to see what comes of it.


Source: Copyright © 2008 New Vision.