The Mobile Money Revolution Is The One Killing The Banking Sector

The Mobile Money Revolution Is The One Killing The Banking Sector

The Banking Sector Is Getting Killed by the Phone in the Same Way Newspapers Are Being Destroyed By Social Media Or The Way The Email Killed Post Office

The proprietor of crane bank Sudhir Ruparelia shakes hands with president Museveni

A lot has already been written and said about the sudden insolvent state that crane banks finds itself after being taken over by bank of Uganda.

Most of Uganda’s celebrated economists have attributed the collapse of crane bank to non performing loans (NPL).

This normally happens when the citizens borrow money from the banks and fail to service or pay back the loans, the banks seize their assets.

Ordinarily, the banks are supposed to sell off the seized assets to recapitalize its financial base of the depositors.

In the case of crane bank, assets from the loan defaulters were seized but not sold. Instead the bank transformed those seized assets into alternative business ventures hence hurting the capital base of the bank.

This is what the Americans referred to as credit crunch.

In America People borrowed money and invested it into real estate but they did not yield the intended profits. The banks ended up seizing the mortgaged assets but also got stuck with them because there were no buyers.

So can you can safely say that Uganda is currently enduring a credit crunch of its own.

Lets Apply Some Logic

But could it amount to this under capitalization of the bank?

I don’t think so because non performing loans alone cannot account for the under capitalization of the bank because the bank doesn’t just lend anyhow. The bank cannot just go on giving loans without looking at its capital base.  They do it systematically such that money borrowed from one group of borrowers must first be recovered before they give others.

For the last eight years I have been receiving my salary from crane bank but I applied for a salary loan and they declined.  Yet a salary loan is the easiest to service.

And in any case, the assets from these NPLs have not evaporated in thin air. This means that crane bank could have asked for more time to recapitalize itself by selling off those assets.

  

This was the same argument that was raised during the issue of bailouts.  President Museveni requested these banks to give the indebted Ugandans more time to pay their loans instead of seizing their assets.

This was the same favor crane bank required to stay afloat.

But the fact that bank of Uganda moved faster to take over tells a different story which shows that there was more to this TAKEOVER than what we are being told.

Irrational Conspiracy Theory

 There is an irrational conspiracy theory that has been cooked up attributing the whole crane bank saga to former Ugandan Prime Minister Amama Mbabazi, as the root cause. one peddlers of that theory if former press secretary to the Ugandan president Tamale Mirundi.

AN exited Tamale Mirundi shakes hands with Amama

Tamale and his theorists claim that Amama Mbabazi and a clique of prominent Bakiga was one of the majority shareholders of the defunct national bank of commerce that was easily dissolved and taken over by crane bank. tamale therefore claims that these Bakiga effectively managed to revenge by bankrupting crane bank .

That these prominent Bakiga worked hard to undermine crane bank by sponsoring negative stories about crane bank in the media until they managed to bring it down.

We agree that the banking sector operates on trust and customer confidence to an extent that once someone hatches a series of negative stories about a given bank in the national media, it affects the confidence of the customers and they either stop depositing or withdraw their funds.

But we also know that customers also operate on evidence not hearsay.  

I have not seen any bank that has ever been brought down by simply publishing negative stories in the media.

Secondly, nobody has endeavored to explain a clear method that these prominent Bakiga used to bankrupt crane bank.

Of course someone said that Kiiza Besigye withdrew his dime four days before the bank went into receivership.

 Was crane bank operating on Kiiza Besigye’s money?

Critical Reasoning

So am trying to tell you that conspiracy theory that implicates prominent Bakiga for having brought down crane bank in revenge for consuming their NBC bank is irrational and doesnt make sense because there is no empirical evidence to prove it other than hearsay and assumption.

The second one about non performing loans is also a false because it could be rectified by granting time for defaulters to pay back.

In any case if it was non performing loans that brought down crane bank then centenary bank which gives out more loans than any other bank in the country could have been the first to close. But centenary bank is growing from strength to strength even when it’s giving out loans to so many Ugandans.

So what other factor can we attribute the fall of crane bank?

The Real Issues

One; the management of crane bank embarked on a massive expansion drive that stretched and drained its resource envelope.

In a space of just two years, Crane bank opened massive branches in Ntinda, Kawempe, Kalerwe, Fort portal and other parts of the country.

It’s obvious that it couldn’t sustain the operation of those branches without bleeding financially.

The Phenomenon Of Mobile Money Banking

but the fundamental factor why crane bank bled can be attributed to the emergence of the phenomenon of mobile money transactions that obviously affected the traffic of account holders in the banking sector as most Ugandans opted to conveniently keep their money on their phone accounts.

Today, there are more Ugandans with a mobile money accounts than with a bank account.

This means that while crane bank has been opening branches all over the country, it has not got the clients to bank with it.

This phenomenon of mobile money obviously spells doom for the banking sector.

In the next five years, the number of Ugandans with a bank account will shrink to considerably negative numbers in comparison to the increasing number of Ugandans with mobile money accounts.

I can predict with utmost confidence that the banking sector will only thrive on salary accounts and loan services.

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Banks that don’t have agencies paying salaries with them and granting loan services will perish completely.

Centenary bank might survive this mobile money revolution because it has managed to deal with those two aforementioned exigencies.

The mobile money revolution is going to have the similar effect to what the email did to post office (which made it redundant to write letters with postage stamps since you could easily email the same to the intended target), similar to what phones did to watches (it’s pointless to buy a watch since you can easily refer to the one on the phone.

This phenomenon is also similar to the effect that social media has had on print media. Today the social media breaks stories before they are printed in the papers making the papers completely redundant.

In fact I can predict that in future newspapers will become cheaper and cheaper and even go for free.

It’s the same way that machines replaced human power.

Thanks for reading this far. 

Fred Daka Kamwada is a journalist and a blogger you can connect with him on kamwadafred@gmail.com