EAC private sector calls for better financial services to boost trade

Nairobi, Kenya | THE INDEPENDENT | The private sector has blamed the banking industry in the East African Community for doing little to promote trade and investment, which has kept the region’s development slow.

The investors say banks have not helped them access the financing needed to boost trade to catch up with the rest of the regions.

In Africa, the East African Community intra-regional trade in about 19 percent of its total trade, just behind the Southern African Development Community’s 23 percent.

However, it does better than Western Africa’s ECOWAS and Central Africa’s ECCAS which stand at 12 percent and less than 6 percent respectively.

The EAC Secretary General Peter Mathuki made it his task to increase intra-EAC trade to at least 50 percent of its total trade by 2025.

Intra-regional trade is preferred because it gives more returns to the countries, including creating more jobs within and enhancing revenues.

At the dialogue by the EAC Secretariat and the East African Business Council, the EABC Executive Director, John Bosco Kaliisa said the East African business community lag far behind others as far as taking up credit for trade and investment.

He, however, says that it has more to do with the complexities in the credit system and the little information that the private sector has about the banking systems.

The dialogue under the theme: Trade Finance in EAC: Barriers and Opportunities for the Private Sector, was aimed at, among other things, enhancing the preparedness of the region’s private sector to take on the opportunities under the African Continental Free Trade Area.

Rashid Kibowa, the EAC Director of Trade, agreed that the banks are not interested enough in the private sector, which is a setback to the community’s aspirations to grow trade.

Kibowa says that as the EAC expands with the admission of new countries, it will not make sense if the business environment is not improved as well, especially as the access to credit remain expensive.

Some reports have indicated that many people in the region are less interested in getting credit from the financial system for various reasons.

However, according to Kibowa, a lot can be done especially by improving the competitiveness of the economies and digitalization of trade operations, which can help boost the uptake of trade finance in the EAC.

He says, for example, that the level of infrastructure development in the region, which slows that trade, means money is tied up for a long and this in turn, further slows down trade.

On the apparently low interest in borrowing from banks, Nathan Gashayija, the Executive Director, Eastern African Trade and Business Services Hub says the businesspeople, especially in the Small and Medium-size Enterprises fear the complexities involved.

These include the interest rates, the collateral, bureaucracy, and products that do not make relevance to them, among others. For these, he says the entrepreneurs fear the possibility of defaulting and what that would mean to them and their businesses.

The EABC Chairman Nicholas Nesbit says financial instruments for trade are not well understood by business people, and this is responsible for the low demand for credit.

But Dr. Margie Kigozi, proprietor of Crown Beverages in Uganda urged the private sector leaders to sensitize SMEs on the available financing options and the opportunities created by the digital transformation of the financial sector.

These innovations which have made access to finance easier include online financial products, and agency banking among others.

Dr. Kigozi also wants the realization of an East African Financial System which she thinks will improve the accessibility, but also calls for enhanced regulation to ensure the protection of the users.

The banking industry says that the main factors behind the limited access to finance in East Africa are the rate of defaulting which makes the lenders more cautious, as well as the high cost of money and the unfavorable operating conditions.

The digitization of the economies and the industry, in particular, is helping both the banks and the public overcome some of these bottlenecks.

They include online operations which make it cheaper to do business, agency banking, and easing the collateral requirements.

Gashayija urges the banks to introduce products that are more tailor-made for SMEs to encourage them to go for credit.

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