Mobile money drives financial inclusion-Finscope Uganda survey

Kampala: According to the Finscope Uganda 2018 report, the percentage of the adult population with access to formal financial services has more than doubled since 2006.

However, formal sector financial inclusion is dominated by the use of mobile money, which provides only a limited range of financial services, largely payments and the opportunity to save money on the mobile phone.

The survey report launched at Kampala Serena Hotel on June 27, 2018 shows that only 11 percent of the adult population in Uganda use a commercial bank or micro deposit taking financial institution and only 3 percent of the adult population in the country who borrow money do so from a commercial bank.

“These findings suggest that the focus of public policy should be to try and broaden the range of financial services to which the population has access particularly from formal sector financial institutions which can offer a degree of prudential management and customer protection which is not available from the informal sector,” said Bank of Bank of Uganda Deputy Governor Dr Louis Kasekende.

The report provides accurate and detailed information on access to, and usage of financial services by the population of Uganda, as well as other relevant characteristics of the population. The information is derived from surveys based on a representative sample of the population comprising approximately 3,000 adults.

The Finscope survey also found that the breadth of access to financial services is quite wide in Uganda, with 78 percent of Ugandan adults having access to some form of financial service from the formal or informal sectors, and that 58 percent of adults have access to some form of formal financial service.

Commenting further on the report, Kasekende said that if the people who own and work in the household enterprises have no access to financial services, their capacities to engage in business would be stifled. “Hence if the promotion of financial inclusion can strengthen the access to financial services of the household enterprises in Uganda, it should help these enterprises to flourish and generate more output and boost the incomes of their owners and operators,” he said.

He said financial services can also be of benefit to consumers, enabling them to smooth consumption in the face of shocks to their income and to meet unanticipated requirements for spending, such as to pay medical bills, as is noted in the Finscope Report.

However, he said there are dangers that come with financial inclusion services. “Consumers may contract debts which exceed their capacity to repay. Hence it is essential that efforts to promote financial inclusion are accompanied by programmes to enhance financial literacy and consumer protection,” he said.

He said that the main reason why most formal sector financial institutions have only a limited reach among the population, is due to the fact that cost of serving low income customers in rural areas outweighs the very limited income streams that can be generated through the provision of financial services to them.

He said broadening access to financial services is only likely to take place if financial institutions can develop innovative ways to reduce the cost of delivering financial services to low income customers or if the incomes of the financially excluded increase, so that they can afford to purchase more services. Mobile money is an example of a technological innovation which has dramatically reduced the cost of delivering financial services to customers, albeit for a rather limited range of services.

Finscope Uganda 2018 report provides information which can help to make public policies designed to promote financial inclusion and broaden access to financial services more effective. It also provides valuable information about the market for financial services to financial service providers in the private sector.