FINANCIAL INCLUSION IN UGANDA A Presentation During the 2nd Meeting of the COMCEC Financial Cooperation Working Group, March 27th, 2014, at Crowne Plaza 0Hotel, in Ankara, Republic of Turkey By Kasenge Lawrence Economist, Microfinance Department, Ministry Of Finance, Planning And Economic Development, UGANDA
Outline of presentation Background Classification of Financial institutions FINANCIAL INCLUSION IN UGANDA-Key Findings of FINSCOPE Survey Financial Access Strands Challenges and Barriers to financial Inclusion Way Forward
Background Since 2006, the Uganda s financial sector has experienced positive changes, remarkably; in the increase of commercial banks (24 banks with over 400 branches), SACCOS and MFIS and informal financial institutions (VSLAs, ASCAs and ROSCAs) 20 insurance companies licensed and regulated by IRA In particular since 2009, there has been a dramatic increase in the use of mobile money services Government efforts to strengthen financial inclusion since 2001 With the above developments, there is need to explore the extent to which these developments have translated into more financial inclusion of the adult population. In Uganda this has been monitored through FinScope surveys since 2006, repeated every after three years
Financial Inclusion- Definition & Measurement Issues Financial inclusion means access to basic financial services from reliable service providers in day to day life.
Financial Inclusion- Definition & Measurement Issues With no widely adopted uniform definition, financial inclusion is reckoned in Uganda as access to financial services from: a) Officially regulated and supervised entities Banks and MDI institutions licensed by Bank of Uganda Insurance companies supervised by Insurance Regulatory Authority, Capital market institutions like investment banks, merchant banks, stock exchanges supervised by the Securities and Exchange Commission (SEC). a) Official entities themselves Post offices offering savings; Money transfer and insurance services; Mobile banking
classification of Financial institutions Financial access strand FinMark Framework Formal banked (regulated by BoU) - commercial banks, microfinance deposit taking institutions (MDIs) Non-Bank Formal SACCOs and Other MFIs at Tier 4, Insurance firms, Forex bureaus, Mobile money, other Informal Village and community based savings and loans associations (VSLAs, ROSCAs, ASCAs) and Money lenders, others Financially excluded- Not transacting any financial services
FINANCIAL INCLUSION IN UGANDA FINSCOPE 3 SURVEY 2013
Overall usage of financial services, % 2013 2009 Formal 54 Formal 28 Formal bank 20 Formal bank 21 Non-bank formal 52 Non-bank formal 20 Informal 74 Informal 60 Excluded 15 Excluded 30
Formal Product penetration Formal product penetration means products and services that are transacted through formal financial institutions (formal banked and non-bank formal) These include (operating a savings account, fixed deposit account, joint account, current account, ATM card/debit card, credit card, investment account, other) The common ones are operating a savings account and ATM card/debit card Overall 20 percent of Adult Ugandans have accounts with formal financial institutions SACCOs next to commercial banks seem to be picking up in providing account holding
Operating an account with formal financial institutions, % 74 50 21 8 5 5 5 5 7 8 1 11 Commercial bank MDIs Credit institutions SACCOs MFIs Others 2009 2013
Product penetration ctd Those wit higher education Those in paid employment Urban residents especially Kampala Who is likely to operate an account? Males Well to do households The main accounts operated are savings followed by ATM card/debit, which are operated by more than 10 percent of the urban population The most common transactions with different banking points are deposit and withdraws by about 33 percent of the adult population in 2013
SAVINGS AND INVESTMENTS
2009 2013 2009 2013 20092013 Uganda Uganda Urban Rural Urban Rural Male Female Male 19 21 16 15 23 16 24 33 5 36 4 6 6 4 7 4 43 28 11 47 4 12 34 40 46 28 18 28 22 17 17 25 29 22 26 25 30 25 26 27 6 5 6 5 7 Female 18 4 28 19 31 Formal Bank Formal Other Informal Home/Secret Place Excluded Figure 6: Savings and investment strand, %
Reasons for savings, % Investment mechanisms, % Basic needs 67 Farm land 53 Emergency 41 Livestock 41 Education Livestock 22 33 Investment through informal institution 39 Safety 13 Investing in business 24 Land 11 Produce to sell later 23 Business 9 Agricultural inputs 7 Investment in financial institution 10
CREDIT & BORROWING
Overall access to credit % 2013 2009 All credit 35 All credit 44 Formal 12 Formal 5 Informal 23 Informal 34 Friends 13 Friends 15 Unserved 65 Unserved 55
Uses of credit from all sources, % Reasons for accessing agricultural credit, % Education 20 Agricultural inputs 54 Emergencies 15 Farm labour 29 Daily expenses 14 Business 13 Buy livestock 15 Agricultural production 10 Buy agricultural land 8 Asset acquistion 7 Farm equipment 6
Remittances and Transfers
Overall access to remittances & transfers, % 2013 2009 Any remittances 55 Any remittances 30 Formal 41 Formal 11 Informal 26 Informal 22
Insurance and Risk Management
Risks encountered in the last 12 months 2013,% Ill-health of family member 48 Drought 26 Death of family member/relative 21 Price fluctuations 18 Theft 15 Crop/livstock disease 15 Death of livestock 10
Overall usage of insurance, % 2013 2009 Any insurance 45 Any insurance 23 Formal 2 Formal 3 Informal 43 Informal 21
Risk management mechanisms in 2013, % Borrow from friends/family 18 Seek for donations 18 Sale assets 15 Reduce consumption 13 Borrow from informal institution 8
Mobile Money Services
Mobile Money Services in 2013 Knowledge & use, % What transactions done, % Knowledge about mobile money 77 Cash withdrawal 56 Receive money 54 Registered user 34 Send money 46 Currently using 56 Cash deposits 33
Challenges to financial inclusion
Challenges to Financial Inclusion: Bank accounts, % 47 22 18 17 Do not have income Cost of operating account Do not understand how it works Do not have a job
Challenges to savings and investments, % 44 47 3 Do not have money to invest Do not have adequate information on savings Lost money in investment before
Challenges to credit & borrowing, % 31 14 13 9 Fear of debts Loans are too expensive Lack of security I do not think I am credit worthy
Challenges to informal insurance in 2013, % % 43 40 39 29 22 19 Members do not pay contributions Members keep pulling out Death occurred to members Dishonesty by members causing financial loss Poor administration Loss of money through theft or fraud from a Committee member
Challenges to formal insurance in 2013, % 55 17 17 10 6 Does not know how it works Never thought about it Lack knowledge on how Does not know where to go Do not want it
Barriers to using mobile money services 2013, % 26 19 11 9 6 No cell phone No money to send/receive No sim card Not enough information Not though about it
Challenges from the supply side the transaction costs that the bankers incur, poor communication, lack of infrastructure, language barriers, low literacy levels poor technology High costs of providing services
Challenges from the supply side cont d Few branches or service outlets of banks and other formal financial institutions in rural areas; Small sized transactions with the poor which is seen as un-remunerative and unattractive by the financial institutions; Quite difficult to have a One-Size-Fits-All financial inclusion policy and regulations for the different players Absence of sufficient data on institutions especially on microfinance institutions Lack of a definitive present address of rural migrants in urban areas.
Challenges on the supply side cont d Legislative Requirements The legislative environment may hinder establishment of financial inclusion policies Capital adequacy requirements, audited balance sheets, size of business, threshold category based on number of members and professionalism They aim at financial sustainability but are a constraint to inclusion
WAY FORWARD-How to address challenges Cooperation. policy makers can work together in - engineering solutions, - creating a financial inclusion enabling environment, - designing regulation and infrastructure, - monitoring progress and assessing policy achievement.
WAY FORWARD-How to address challenges cont d Build bridges and collaborations between Government institutions concerning policy on financial inclusion. Cooperation across departments within the same level of Government. Ensure inter-sectoral collaboration for communities that are to play an active role in the policy-making process. Build financial literacy so that people have realistic expectations and understand their rights
WAY FORWARD-How to address challenges cont d Information Technology: a major breakthrough Lower borrowing costs made possible by IT based remote delivery and recovery of loans can enable many currently excluded individuals to borrow for new output activities. Some public utilities are already collecting utility bills from users through mobile phone based arrangements. Cost saving IT based remote delivery arrangements are possible for numerous government payments like social safety net allowances, pension payments, and so on.
Concluding Remarks There may never be an occasion to call the tasks of financial inclusion and poverty eradication over and done with. In conclusion, we should deeply keep in mind that financial inclusion combats poverty by: unblocking advancement opportunities for the disadvantaged poor; fostering social inclusion; Promoting inclusive socioeconomic growth.
Many thanks