Uganda's financial financial inclusion may have increased from 57 per cent in 2006 to 78 per cent this year, but the impact of changing consumer dynamics, product innovations and the effect of economic conditions on people’s financial behaviour remains to be seen.
A Uganda Finscope survey for 2018 — a periodic study carried out on the country’s financial sector since 2006 — indicates a sharp increase in the number of Ugandans who use financial services.
The total value of mobile money transactions grew from Ush37.4 trillion ($9.7 billion) in June 2016 to Ush63 trillion ($16.3 billion) in June 2017, according to Bank of Uganda data, while the number of registered customers increased from 19.6 million to 22.9 million.
The survey shows 50 per cent of savers, which works out to five million adults, save informally with village savings and credit associations and trusted community members.
While the surge in mobile money users has increased access to financial services, the same effect can be attributed to the rapid growth of savings and credit co-operatives and the village associations.
However, there are questions over the financial sector’s response to the changing needs of selected population segments. For example, some insurance companies have rolled out motor vehicle protection policies for women but their impact remains to be seen.
Similarly, banks have introduced dedicated deposit accounts for university students but their impact has not been verified yet.
The survey found that 70 per cent of adults, equivalent to 13 million people, have not attained secondary school, which presents a challenge to financial institutions eager to expand market share among the disadvantaged.
“The banks still rely on old business models that are biased towards educated consumers and lose out on this lucrative customer segment,” said Joseph Lutwama, an economist at Financial Sector Deepening Uganda, who funded the Finscope project.
Some 48 per cent of sampled adults, equivalent to 8.8 million people, rely on farming for a livelihood, while about 20 per cent (3.6 million people) do not generate any income and are dependant on someone else for survival.
Only three per cent of adults (or 600,000 people) are employed in the formal sector, the survey revealed.
The survey also revealed that many adults fear being indebted. It found that 54 per cent of adults (or 10 million people) did not borrow money during the 12 months prior to the study.
Only 46 per cent (or 8.5 million adults) borrowed money during the period.
While advocating a change of strategy to get more Ugandans on board, Wilbrod Owor, executive director of the Uganda Bankers Association noted the existence of “a fast growing young population that deserves strategic responses.” he said.
Mr Owor added that they were considering technology sand boxes that allow financial institutions to develop new products, test them on the market and launch them before the Central Bank evaluates their business potential.
“The macroeconomic picture has remained negative since last year due to low government spending, static wages and poor consumer confidence levels. Faced with these conditions, many consumers are reluctant to borrow even with prime lending rates of 19 per cent because they are not sure about securing equally high returns under harsh economic circumstances,” said Simon Peter Kavuma, chief finance officer at Citibank Uganda Ltd.