Introduction to financial services 6

THE UGANDA INSTITUTE OF BANKING & FINANCIAL SERVICES

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1Introduction to Financial Services


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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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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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CompetitionIn 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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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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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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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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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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CollaborationIn 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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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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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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END

Introduction to financial services 6

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