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Financial inclusion; Is Uganda making “any” progress?

The government is proposing additional taxes on mobile money transfers in order to increase government revenues. The proposal is a levy of 15% withholding tax on withdrawals and transactions by “licensed operators”. This is one of the proposals being in the tax bills that will form the basis of the revenue collection projections for the financial year 2018/19. The discussion has been whether this proposal will affect the progress Uganda is making in financial inclusion partly due to mobile money access.

Mobile money has over the years grown to facilitate transactions of over Shs54trillion, according to Bank of Uganda (BoU). For a service that started in 2009, the use of mobile money is growing at a much faster rate than any other money transfer service in the country. Most of this is due to the availability of a mobile phone. Estimates place total mobile money subscribers at about 22 million as at end of 2017.

It was not always the case.

Nine years ago, according to the 2009 Finscope Survey II, mobile money transfers were only used by 12% of the total adult population. Informal money transfers were dominant at the time, including the use of taxis and relatives. However, for a service that had only made it to the market, such growth can be considered impressive. It jumped from 0% to 12% usage over a period of one year. The Finscope Survey at the time did not dwell too much on mobile money because it was still new to the market. The 2009 survey (Results of a National Survey on Demand, Usage, and Access to Financial Services in Uganda) revealed that most adult Ugandans relied on informal channels to access financial services. At the time, 21% were using formal banks.

This would later change in the subsequent survey

In 2013, the Economic Policy Research Center (EPRC) released the Finscope Survey III. Titled “Unlocking Barriers to Financial Inclusion”, and the dynamics of access to financial services had changed. The classification within Finscope surveys usually has several strands. There is what they term as formal banking institutions and non-formal banking institutions. In 2013, we begin to see the impact of mobile money as per the research.

“In comparison to 2009, use of formal banking institutions remained the same while the share using only non-bank formal institutions but not formal banking institutions increased from 7 percent in 2009 to 34 percent in 2013. This increase was mainly driven by the surge in use of mobile money services between 2009 and 2013,” the 2013 survey reads.

Interestingly, in that same survey, it also indicates that people financially excluded reduced from 30% in 2009 to 15% in 2013. Most of this bracket that migrated to the financially included category was in part due to mobile money access.

Formal banking usage remained largely flat in 2013 at 20% from 21% in 2009. In all this, the survey aims to highlight whether we are making progress towards financial inclusion. Considering the growth of mobile money, there needs to be a convergence on whether financial inclusion is indeed being achieved.

Since 2013, mobile money has expanded with its uses also changing. Now, people can borrow money through several products like MTN’s MoKash and Airtel’s Wewole. Additionally, commercial banks are now selling insurance products and have ventured out into agency banking.

Financial inclusion?

The World Bank defines Financial Inclusion as “…individuals and businesses have access to useful and affordable financial products and services that meet their needs – transactions, payments, savings, credit and insurance – delivered in a responsible and sustainable way.”

The key words in this definition are: “access to useful and affordable”, “delivered in a responsible and sustainable way.”

So, is Uganda financially inclusive yet?

Not yet.

In November 2017, Jacqueline Musiitwa, Executive Director, Financial Sector Deepening Uganda (FSDU) wrote:

“Poverty will reduce when people will be able to use multiple financial products such as savings to prepare difficult times, borrow to grow businesses, be insured against man-made and natural disasters, easily and affordably receive and make payments and so on.”

Uganda is still work in progress.

Two areas of financial inclusion have been improving; that is transactions and payments. However, some consider the costs to still be high, despite the improved convenience.

Will the tax proposed on mobile money affect the “affordability?” given the discussions ongoing about the already existing transaction rates? We wait.

Credit access is also improving with mobile money loans but there is still more work to be done.

Lending rates in formal banks are also still high, excluding small businesses from affordable credit access. Insurance access is also still limited to a few (less than 1% of the value of the Ugandan economy).

If Finiscope IV is released, it would better inform the progress made so far in financial inclusion.

Reading from the 2017-2022 Financial Inclusion Strategy by Bank of Uganda (BoU) there is an indication that the objective of the government is to have Ugandans being financially included. In the strategy, they identify at least 21 gaps that are leading to financial exclusion in the country. However, only 15 of these are considered key to unlocking financial inclusion in Uganda. At the end of the day, greater financial inclusion will yield better results for inclusive growth.

“Empirical evidence shows that financial inclusion can aid self-employment, improve household consumption, support greater local economic activity, and reduce inequality. There is also macroeconomic evidence to show that economies with deeper financial intermediation tend to grow faster and reduce income inequality.”

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