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Ugandans sidestep banks, embrace mobile money

The use of non-bank formal services is leading the pack of financial inclusion in Uganda, a new study has revealed.

According to the 2013 Finscope III Survey, it is the mobile money platform that is leading the charge of financial transactions outside the banks. The surge has seen the share of the adult population accessing financial services rise from 28 per cent in 2009 to 54 per cent in 2013.

Titled Unlocking Barriers to Financial Inclusion in Uganda, Finscope III is the third of surveys carried out after those of  2006 and 2009 by the Economic Policy Research Centre (EPRC). It was funded by UK’s Department for International Development (Dfid).

The survey reveals that the current number of registered mobile money users is higher than bank account holders. In just four years, there is an estimated 5.1 million mobile money users compared to 3.4 million persons who hold bank accounts.

“Since the introduction of mobile money in 2009, financial access through the non-bank formal institutions has increased from seven per cent to 34 per cent. While the number of those opting for bank accounts has dropped by one percentage point [21 per cent to 20 per cent],” said Dr Sarah Ssewanyana, the executive director of EPRC, while releasing the report in Kampala last week.

This growth is related to the ease, convenience and relatively lower cost of using mobile money services compared to other services. But Ssewanyana says higher interest rates appeared to have scared away customers from the banks.

“Banks were forced to increase lending rates and other costs, which scared away borrowers,” she said.

The World Bank Financial Inclusion index (Findex) 2011, showed that maintaining a checking account in Uganda cost the equivalent of 25 per cent of GDP per capita annually. About 54 per cent of non-account holders cited cost as a reason for not having an account.

However, Justine Bagyenda, the executive director for supervision at Bank of Uganda, says these results should be treated positively. Bagyenda argues that though the report shows that the number of bank account holders stagnated, there is sector growth in deposits, assets and outreach.

“[The] Lending position of banks has increased from Shs 681bn in 2001 to Shs 7.6 trillion in 2013. Banks have also increased from 20 to 25, with close to a 400-branch network,” she says.
However, while launching the Banking and Finance Expo in March this year, Bagyenda complained of the limited number of banked Ugandans and asked bankers to increase the number to “at least 10 million”.

Meanwhile, a senior researcher at EPRC, Lawrence Bategeka, says the financial inclusion agenda should not be driven by the number of bank branches, accounts and deposits but by who is accessing them. Bategeka says the country faces an urban-rural divide, where the people in the village lack creditworthiness, and commercial banks considering rural people irrelevant.

“I think development precedes financial inclusion,” he says.

“It is not by coincidence that most bank branches are in urban areas, and financial access is higher among the educated, the wealthier and males who have collateral”.

Speaking at the launch of the Uganda Rural Challenge Fund in April, Louis Kasekende, the deputy governor of the Bank of Uganda, voiced concern that more than 12 million adults in rural areas did not have access to financial services.

“There are a number of options that could be tapped to address these problems. For instance banks, credit institutions and microfinance could open branches even where they are unprofitable in the interim so long as they could be funded by other profitable branches,” he said.

Kasekende said developments in new technology, particularly mobile and internet banking, could be leveraged to provide a notable platform for improving financial inclusion and an opportunity to move towards branchless banking.

Poor saving culture

In 2012, Bank of Uganda put Uganda’s savings-to-GDP ratio at about 11 per cent – among the lowest in sub-Saharan Africa. Cited impediments to organized savings were: high fees, high minimum deposits and physical distance from banking institutions

In Uganda, a significant number of bank and mobile money account holders use the platforms for making transfers than saving. The Finscope III survey indicates that the share of adults saving through formal means has remained unchanged, with the majority using informal savings. Only six per cent use mobile money for saving.

“People use banks to receive salaries,” Ssewanyana says.

According to Bategeka, the few that save do it for consumption.

“It is much harder for such societies to mobilize money to start a business than it is to organize a wedding or graduation party,” he says.

The survey looked at 3,401 households across all regions in Uganda. They were interviewed in relation to socio-economic characteristics and use and non-use of financial services. According to the United Nations, access to financial services is a key ingredient in the fight against poverty and achieving the Millennium Development Goals. Richard Rose, Dfid’s representative, advised that the survey results should not stop at mere presentation but be used to influence policy and action.

“These surveys have been very influential in South Africa and 16 other countries where the survey is carried out. It should be the same here,” he said.

Experts argue that while mobile money has brought much progress in the sector in Kenya, serious barriers remain in Uganda. Mobile money services are not as pervasive and many more people still struggle to save money, transact over long distances, access credit or achieve financial stability.


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