MOBILE BANKING COMING SOONER THAN WE KNOW

Last week the Bank of Uganda released its annual report for the year ending in June.

Aside from the big numbers – the economy grew by 3.1 percent in 2019/20 down from 6.8 percent the previous year, that private sector credit had slowed due to the Covid-19 related lockdown, there was the interesting statistics on the mobile money front.

"In the just concluded year sh79.7 trillion was transacted on all mobile phone platforms, this figure was up 19 percent from the previous year’s sh66.9 trillion...

To put this in perspective the national budget of Uganda for 2019/20 was sh40trillion, so twice as much money went through the mobile phone platforms than government shelled out to run its programs.

Also this number which comes to about $21b is 70 percent of the sum total of all the economic activity or GDP last year.

This last comparison, no less important than the first, suggests, no, points to the fact that mobile money is playing an increasingly significant role in the economy.

The service has evolved from just a money transfer business between mobile phone subscribers, now you can save and borrow money off your phone and slowly but surely gaining traction as a payment system.

We don’t have to look far to discern the future. Across the border in Kenya Safaricom’s MPesa is now a preferred payment system but in addition now companies there can transact with each other on the platform.

NATIONALISM, THE LAST RESORT OF THE SCOUNDREL

Two weeks ago the commercial court made a controversial ruling in a case between Kampala businessman Ham Kiggundu and Diamond Trust Bank (DTB).

The highlight was the court ruling that  a DTB loan to the businessmen that was executed by the parent Kenya bank was illegal as DTB-Kenya was not registered to do  business in Uganda.

The court went on to reverse the payments the bank had made to itself from Kiggundu’s accounts when they claimed he defaulted on the loan.

Interestingly Kiggundu claimed he had repaid the loan. Anybody who has ever taken out a loan with a bank knows its unlikely, next to impossible, that you can repay their loan and the system does not register the payments. So who is fooling who?

It is

a detail that was lost in the larger picture of what the ruling meant for the industry and economy.

Kiggundu has been telling anyone who can listen how this is a conspiracy against the local businessman by foreign banks and will have dire repercussions  for our economy.

It reminded me of the bank closures at the turn of the century, which mostly put paid to locally owned banks.

In all cases the banks had sunk under the weight of growing bad loans, to businessmen who didn’t think they needed to repay their loans. In addition a lot of red ink in the bank books were due to loans to related parties – directors and affiliated companies, that had  gone bad.

In one case, the bank even illegally sold shares to the public and lost all the new owners money.

In those cases too the local bankers claimed it was a ploy by the foreign interests to stifle the growth of the local banking industry  and the local business community by extension.

They say nationalism is the last resort of the scoundrel.

"Whenever people start making none business arguments to justify their incompetence or theft – the best way to rob a bank is to own one, they say, a red flag is raised in my mind....

Banks aggregate savers’ deposits and lend these funds to borrowers.

Following the closures in the late 1990s and early 2000s the laws were amended to increase the minimum capital from less than a billion shillings to now sh25billion or less than $10m. 

This was in light of the growth in credit, the higher the capital the more the bank can lend without putting savers deposits at risk.

Also the banking regulations are such that no bank cannot commit more than 25 percent of its loan book to one borrower.

In the context of the Kigundu case where his needs were for $11m ( sh40b) you can see how few of our banks – foreign owned or otherwise, could handle him.

In addition no one single individual can own more than 25 percent of the bank, a safeguard against insider lending and other malpractices.

"The net effect of this ofcourse is that locally owned banks have fallen by the wayside – Ugandan businessmen seem incapable of coming together to meet these requirements....

The argument has been made that the requirements for locally owned banks should be eased, but that will only mean they wouldn’t be able to lend to the Kigundu’s of this world anyway.

There are structural issues in the financial sector, not least of all that it is dominated by commercial banks, who by their nature are not suited to lending to start ups, small business, agriculture and to long term projects.

Banks need to be better capitalised too. The sh25b minimum capital requirement may have been adequate 10 years ago but is now woefully inadequate. 

The Kigundu case inadvertently is saying that in order not to borrow from abroad our banks have to better capitalised, further knocking out the locally owned bank.

And what is it about foreign owned versus locally owned banked?

"Are we saying that local banks don’t deserve to make profit or is it that  with local banks we will be abled invoke non-business criteria  – family  and tribal ties, old boys network to get cheaper credit which we will dodge and duck not to repay?

See how that worked for Uganda Commercial Bank (UCB), Cooperative Bank and Greenland Bank to name the obvious ones.

The legal minds have been deciphering the case and Diamond Trust Bank will appeal the ruling.

That being said the case has raised interesting issues that will be handled in subsequent bank reforms – upping the capitalisation of banks, deepening the financial sector beyond commercial banking  among others.

On our side of the counter let us also work towards developing a culture of loan repayment. When you borrow not only from the bank reorient your mind to pay back the loan. We will save a lot of drama that way.

Oh! I see another conspiracy. When you default on a loan these days the  Credit Reference Bureau blacklists you making it difficult to borrow again or if you do, it would have to be at a higher rate.

IT’S DÉJÀ VU ALL OVER AGAIN

The event of the last few weeks took me back 20 years and a reminder that there is nothing new under the sun.

At the turn of the century we were gearing up for the second presidential race since 1986.

In 1996 President Yoweri Museveni won 74.2 percent of the vote beating Paul Ssemogerere into second with Kibirige Mayanja coming a distant third.

"It was not clear that Ssemogerere was going to run again, which raised the specter of an election where Museveni competed against himself. The NRM is rabidly averse to such a scenario. They don’t want 98 percent wins in the polls....

At around that time Nasser Sebagala – may his soul rest in peace, was back from the US where he had been convicted for passing forged checks. Before the conviction he had just become the mayor of Kampala but on his return he made it clear he was going to run for the highest office in the land. The Kampala elite smiled into their beers.

But a curious thing begun to happen. When Ssemogerere would try to have a rally it was preempted by security, but Sebagala aka Seya was running around the country holding rallies, drawing crowds and seemingly gaining momentum.

In trying to make sense of this I asked around. “We want a race. Ssemogerere is no competition so we need someone else to bring some excitement to the polls, but we know we will win them anyway” an insider told me.

In the back of my head, I thought my friend was reading too many Robert Ludlums.

I had to rethink this a few weeks later because Colonel Kizza Besigye threw his hat in the ring. To confirm my friend’s statement Sebagala’s campaign went out like a light, but not before questions were raised about his academic credentials, which had not been a problem until then.

Sebagala failed to get nominated to run for the presidency and he quickly fell in with the Besigye campaign. He of course, found time to win back his mayoral seat.

"I will be forgiven with this background in mind to look at the Robert Kyagulanyi aka Bobi Wine campaign with a jaundiced eye....

The National Unit Platform (NUP) tell the public they are a young a party – barely months old, and recent flops in the special interest group elections are down to their newness. And then without missing a beat they claim they will be the ones to run the NRM out of town, when they don’t have a presence in half the country. 

These are facts for all to see not least of all the government and its security agencies.

So then how do you explain the constant “harassment” of NUP/People Power? The narrative being sold is that the government/NRM is quaking in its boots at the growing popularity of the Reds.

Hillarious. 

There are no miracles in politics. There are no spontaneous movements that upset governments at the polls or overthrow them all together.

"Below the surface of successful movements is huge organisational structure working furiously but quietly – not unlike the duck paddling furiously under water while remaining calm above the surface

. This doesn’t need to be in offices and wheezing around in big four wheel drive cars. In today’s increasingly connected world the phone has taken over from other analogue technologies.

The Ayatollah Khomeini  returned from 15 years exile to a hero’s welcome in Iran, shutting down the largest cities in the country. Two weeks prior to his return the ruling Shah had fled into exile himself, overwhelmed by the resistance to his CIA backed rule. This groundswell of support was far from spontaneous. Khomeini’s supporters  distributed tapes of the Ayatollah drumming support for an overthrow of the Shah for years prior. The voice of the Ayatollah could not be stopped or resisted.

The point is there is a lot of work for NUP to do if it is to be in with a shout of even getting more than 22 percent of the vote in the next election.

Twenty two percent is the urban population according to the latest census.

Urban populations are known from being disproportionately loud for their size, wherever they are. And in countries, even on the continent where entrenched parties have been shown the door, it has been in countries that are more urbanised populations.

Uganda’s mostly rural population is where the action is now – the rate of urbanisation is changing that, and the one with the network to reach all of them  -- boots (literally or figuratively) on the ground, will win.

"NUP are romantic, rabble rousers, rebels with a cause nevertheless, but they will quickly learn that its dangerous to read your own press clippings....

Said another way, in the words of the 1990s band Snap, “Don’t believe the hype, It’s a sequel."

THE SEEDS OF OUR FINANCIAL DESTRUCTION

The call was as if from the blue. Even I was surprised I still had his number saved in my phone book.

He dispensed with the greetings quickly. I was transported back almost 20 years as he spoke.

He said he had been reading what I write and then he sighed. I knew the sound. The sound of an elder who sees the young man groping in the dark. Tempted to show him the way, but wisdom dictates that he should make his way alone.

We should meet at his house – it was still the same one in a leafy Kampala surburb, Saturday for lunch at 1. It was not  a request. He hadn’t changed.

I was ushered into the living room by Idah, his house keeper from 20 years ago. He will be with you shortly, she said as she directed me to the sofa and asked what I would have, while I waited.

He had lost the bounce in his step, there was sag in his shoulders and a stoop in his posture. But otherwise he seemed to have aged very well.

Let’s call him Sam. He used to be one of the richest men in this town. At least that’s what we thought.

He parlayed a Luwum street shop into a thriving Import Export business --- XXXXX Impex. Bringing everything from clothing to cars to perfumes, wines and spirits.

"He was making money hand over fist and made sure everybody knew it – flashy cars, high living and legendary nights out at Ange Noire and Club Obligato...

I got to know him, in a matter of speaking, during the spate of bank closures in the late 1990s. 

It turns out he was leveraged to the hilt and the collapse of Greenland Bank all but buried him. Or not, as it turns out. He had stepped out of oblivion and was right there in front of me as if it was just yesterday, when he was the toast of the town.

Why did he want to see me? He would not be hurried.

We talked politics … he thought we were going to the dogs. We talked the economy … he was confident that the resilience of the people will pull us through in spite of ourselves. We talked society … he wondered where  all these ‘fakes” (socialites) pop up  from.

The indication that we were getting down to business came when he declared something to the effect that the more things change the more things remain the same.

Lunch was done, the drinks had started flowing.

“Why do you think I have gone quiet?” I couldn’t say, you run broke. He spared me the blushes by answering his own question – with a question. “Do you think I was rich?” That was an easy one, “Yes. You had money”.

“Even me I thought so.” I didn’t know what to respond.

“I was good at giving the impression I had money.”

The described to me a life of timing his shows of lavish expenditure when everyone was looking – at the night club, the cars he hired every so often to give the impression he was changing cars frequently, the beautiful women he bribed to hang on his arm...

“For what?” For that he said he had to go back to the beginning.

He was born outside Kampala. His father abandoned his mother, him and his three sisters. They scraped and scratched to make a living. He managed to do book keeping after his O-level and went into business.  

Money came to him quickly and his bookkeeping skills gave him an edge over his contemporaries, especially when taxes became an issue.

By the 1990s he was flush with cash. He had plots around Kampala, about 50 rental units and millions in the bank. His business was throwing off millions of shillings a week.

"He was young. He was indestructible. It was inconceivable he would fall back into destitution...

He spoke too soon.

The collapse of the banks hurt his cashflow – a lot of money got stuck in the banks. And when the receivers started collecting on loans, it was adding salt to injury.

He laughs when remembers all the ticks they tried to save their businesses, the businessmen of that generation – loan sharks, forged checks, black dollars, the courts,  but wapi!

He shakes his head. 

There is nothing to show for the millions he blew on high living, with money that was not his, buying things he didn’t need, trying to impress people who didn’t care.

"He had a rural approach to urban excitement, he says. He can laugh now but then when his world came crashing down all around him, suicide crossed his mind....

If he were to do it all over again he would be more ambitious. More ambitious for his business, “why couldn’t he have had a string of shops?Or built dozensm ore rental units?” and not to show the world that the lito village boy had made it good, who cared?”.

That way he thinks he may have weathered the bank closure storm and still be in business today.

He is not destitute, he still had a taste for Black Label, but he thinks he would be richer than God by now – he made the sign of the cross after this assertion. 

“So you see, the more things change the more things stay the same.”