KAMPALA, Uganda– Standard Chartered Bank launched its Socio-Economic Impact in East Africa report today in Kampala.
“The independent socio-economic impact assessment of Standard Chartered Bank’s operations in East Africa, prepared by the consultancy firm Steward Redqueen address the issue – the contribution of the bank to the economy and to social welfare, in a rigorous and comprehensive manner using an input-output methodology,” Dr. Louis Kasekende, Deputy Governor Bank of Uganda.
He said the reports sets out to quantify the contribution which Standard Chartered Bank’s operations, principally its lending to the private sector, made to GDP and employment in Kenya, Tanzania and Uganda, in 2016. The impact arises from both the direct support which SCB’s lending provides to its borrowers and the second round effects on the borrowers’ suppliers and other indirect effects. These contributions to GDP and employment are far from being negligible.
Kasekende said in Uganda, SCB extended domestic credit to the private sector, through both onshore and offshore financing, of just over $900 million in 2016, which amounts to about 3.6 percent of GDP.
The socio-economic impact report estimates that SCB’s lending supported value added of 3.5 percent of GDP and almost half a million jobs.
“Each Shilling of SCB’s lending supported GDP of a similar magnitude. This might not appear very large until we recall that bank finance generally provides a borrower with funds to purchase both factor inputs and material inputs, whereas it is only the factor inputs which comprise GDP,” Kasekende note.
He said the fact that there is an almost one for one relationship between SCB’s finance and the magnitude of GDP which it supports is indicative of finance being a scarce resource in Uganda and that marginal returns to capital are high, at least for the borrowers of SCB. High returns to borrowing also suggest that funds are being intermediated efficiently; i.e. channelled to those borrowers which are able to use funds most productively.
According to Kasekende, The results of the socio-economic impact assessment add to our knowledge of the economy and provide important insights into the way in which the banking industry affects the economy.
For example, he said, the report shows that value added and employment are not only generated in the businesses which directly borrow from banks, but also by the businesses which supply goods and services to the direct borrowers and through the demand generated by the spending of all those who receive wages and salaries in the businesses which benefit, directly or indirectly, from bank lending. Nearly two thirds of the impact of SCB’s operations on GDP takes the form of salaries. In terms of supporting employment, SCB’s operations in Uganda have their largest impact on the agricultural sector, which accounts for 46 percent of all of the jobs supported.
He said banks all around the world tend to attract a lot of public criticism, and banks in Africa are no exception. The main complaints about banks in Africa are usually two-fold. First, that they charge very high interest rates on their loans. Second, that they restrict their lending to a relatively small segment of the business community, excluding most of the small and micro-enterprises which comprise the bulk of the economy and provide the majority of employment.
Which he said is brought about by factors, many of which lie outside the banking industry itself. Such as nature or size of the enterprise among others, which he said are very important consideration for banks when lending.
He said one of the salient implications of these findings for public policy is that we must be very careful to avoid implementing any measures which might curtail the volume of bank lending to the business community, as any reduction in lending could have significant negative effects on output and employment.