Why is it important for commercial banks to value small scale enterprises?
Small and medium-sized enterprises (SMEs) form the backbone of any economy. In Uganda, as in many developing markets, SMEs and micro-businesses are the true drivers of economic growth. This is because they are significant players in the supply and distribution chains of large corporates. For instance, these enterprises will bulk up farm produce from farmers such as grain, coffee, milk and sell these to the processors.
From a distribution perspective, they will distribute the finished goods from the large manufacturers through the value chain that may or may not go through a stockist and retailer to the final consumer. Many enterprises also engage in international trade, and contribute to foreign exchange earnings.
They provide employment and absorb a significant portion of Uganda’s youth workforce and improve on their living standards. From an SME perspective, we have over a million SMEs in Uganda. Each of these SMEs provides direct or indirect employment to millions of people. On average, each adult in Uganda has 7 to 9 dependents; thus, when a business closes, the ripple effect reaches many people. So, that segment is at the heart of any economy. It drives Uganda’s economy.
Our role is to support these enterprises across sectors like agribusiness, energy, manufacturing, education, logistics, and infrastructure. We also collaborate with community-based financial institutions such as SACCOs and cooperatives, which play a crucial role in reaching underserved areas and providing financial services to the last mile.
How do you view the state of Commercial Banking in East Africa?
Commercial banking in East Africa is experiencing robust growth, driven by strong economic fundamentals and regional development. The region’s Gross Domestic Product (GDP) exceeds $240 billion, with growth rates averaging above 5.5 percent, supported by key sectors such as agriculture, oil and gas, and infrastructure development.
The East African Community (EAC), comprising a population of over 300 million people, presents a vast and evolving market with increasing demand for food, energy, transport, education, and healthcare services.
This dynamic environment still attracts significant foreign direct investment across member states, including Uganda, Kenya, Tanzania, and South Sudan, further fueling economic expansion.
The interconnected nature of the region and its demographic momentum offer immense opportunities not only for commercial banks but also for businesses and investors seeking to tap into the growth across multiple sectors.
As the region matures, commercial banking benefits substantially from the expanding financial needs of individuals, enterprises, and governments alike.
Stanbic is a continental bank; with specific reference to the East African region, how active is the bank’s operations in the region?
Stanbic is deeply embedded across East Africa, with a strong operational presence in Uganda, Kenya, Tanzania, and South Sudan. This regional footprint enables us to provide seamless, cross-border banking solutions tailored to the needs of clients operating across multiple markets, ranging from multinational corporations to SMEs.
Our ability to support regional trade and investment flows is a key differentiator, ensuring continuity in service delivery and helping businesses manage their operations efficiently across borders.
East Africa is a highly integrated economic zone. With Kenya and Tanzania providing access to the Indian Ocean, they serve as vital gateways for the import of raw materials and essential goods such as fuel and for the export of products from landlocked countries like Uganda, Rwanda, South Sudan, and the DRC. The interdependence of these economies is such that regional shocks in one country can ripple across others, underscoring the importance of a unified banking partner.
This is why Standard Bank’s presence across the region is so critical. We are positioned to facilitate secure, efficient, and scalable financial solutions that support the ambitions of our clients and the broader economic integration of East Africa.
There’s been a noticeable rise in personal loans over the past year. What’s driving this?
The growth in personal loans is indicative of a broader trend in retail banking, driven by increasing financial inclusion and greater access to credit. Personal loans, along with trade loans and communication loans, have become some of the fastest-growing segments in banking.
That said, the commercial banking side of the business, particularly corporate lending, is still integral to our strategy. For example, a grain processor may need financing to build silos and processing lines, but for their business to succeed, they need a reliable supply of raw materials. This is where supporting smallholder farmers comes in.
By helping these farmers, often through their SACCOs, VSLAs or producer cooperatives, we create a more robust ecosystem for the processor. This ensures that every link in the supply chain is supported, which benefits both the businesses and the wider economy.
Year in-year year out, people complain about the high interest rates in banks. Why is this so?
Interest rates in any market are influenced by several factors, including the cost of funds, the level of risk, and the economic environment. It is important to recognise that lending rates are not universal; they vary across different financial institutions based on their cost structures and risk appetites.
At Stanbic, we work with partners like SACCOs to provide funding at subsidised rates.If we were to lend to these institutions at our standard rates, they would, in turn, lend at even higher rates, which would defeat the purpose of our intervention. We also consider the credit risk of borrowers. For example, a client who pays their loans on time will receive better terms than one who defaults, as the cost of collection for a defaulter is higher.
Over the years, high operational cost remains a disturbing factor in commercial banking, what is your view on this?
Operational costs are indeed a challenge, and they are something we continuously work to manage. At Stanbic, we are investing heavily in digitising our processes to improve efficiency and reduce costs.
However, we are also mindful of not leaving any of our customers behind. While digital transformation is crucial, it’s equally important that we provide accessible services to those who may not be fully comfortable with digital platforms.
Striking this balance is key to ensuring that we maintain high service standards while improving our cost structures. As we continue to innovate and streamline operations, we are confident that these improvements will create value for both our customers and the bank.