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Why do customers fear banks?

By Annette Kuteesa and Corti Paul Lakuma

To be successful, lessons in financial matters must involve simple decision-making rules

In Uganda, many point to the success of mobile money in improving financial inclusion by promoting peer-to-peer money transfer. The widespread presence of mobile service stations and variety of services, particularly in urban areas, are an obvious show of activity.  Mobile money users describe its benefits as reduction in transaction time, improved security, and convenience.  As a woman who owns a small printing business said, she no longer has to travel long distances to deposit money with her supplier for delivering goods. Instead, she just goes to a close-by mobile service center.

The mobile centres are easy to use because they require little paperwork–typically just the transaction fee and recipient’s mobile number. Similarly, a home owner whose utility billing accounts are linked to her mobile phone praises the service on decreasing her time spent waiting in long queues.  While shortening the distance between the payer and recipient is a tremendous achievement, it is only a small fraction of the level of financial inclusion that needs to be attained in the country.  A recent FinScope III (2013) study by the Economic Policy Research Center (EPRC) reveals that 15 per cent of adults in Uganda are entirely financially excluded. They do not use formal banks, non-bank formal institutions, or informal institutions. The report also reveals that only 19.5 percent of the adult population has an account at a formal financial institution.

The woman with the printing business is one of those individuals without an account at a bank. The report underscores several barriers that must be overcome to boost formal financial inclusion.   One major barrier that must be addressed is the lack of knowledge about various financial services, which hinders the ability to access and utilise financial products such as bank accounts, and engage in beneficial activities such as saving and investment.

For example, the lack of knowledge on how accounts function (17.6 per cent) and inadequate information on savings (46.9 per cent) are featured as major problems limiting sound financial practices.

The report concludes by urging the government and private sector to design programs and policies that can promote financial literacy and improve effective utilisation of financial products and services.

The above findings are not different from an earlier FinScope Survey conducted in 2009 which found 16 per cent of Ugandans financially excluded.

The strategy for financial literacy in Uganda that is being promoted by the Bank of Uganda specifically targets the knowledge barriers highlighted in the report. However, the question remains as to whether the many activities outlined in the strategy will be effective at delivering the desired expected outcomes, particularly around savings behavior.

A recent publication (2014) by Dean Karlan, Aishwarya Lakshmi Ratan, and Jonathan Zinman notes that designing financial literacy programs intended to change saving behavior is not as easy as one may think. Targeting what people do or do not know does not seem to be enough. Offering a finance training course does not necessarily change saving behavior as people who are most aware about financial matters do not always perform better on financial activities, a concern that is also noted in Uganda’s strategy for financial literacy.

This discrepancy is best illustrated by evidence from randomised evaluations in developing countries. Randomised evaluations rely on experimental methods to evaluate the impacts or effectiveness of programs. For instance, in India, Field and colleagues (2010) focus on working women in the informal sector, and they find that the financial literacy program has no impact on the likelihood of saving. Another study in India finds an almost similar tendency concerning financial literacy. Carpena and colleagues (2011) evaluate the impact of a video-based training on savings, credit, insurance and budgeting. The results show that financial training, even when delivered through a media channel, has a limited impact on accounting/numeracy skills but leads to an increase in basic financial awareness and attitudes towards financial decisions.

These results in no way downplay the importance of and need for financial knowledge. Rather they challenge us to dig deeper and find what works or does not work when designing national programs. In fact, investigations by Drexler and colleagues (2014) and Seshan and Yang (2014) show that programs that are simple in terms of content, short in terms of time commitment and specific; targeting a particular behaviour, can be successful.

Drexler et al.’s work (2014) contrasts two approaches in the Dominican Republic. The first approach relies on a standard training administered to small business owners in many developing countries, which involves lessons in fundamental financial accounting concepts. The second approach is training in simple financial decision-making rules or “rules of thumb”; for example, micro-entrepreneurs are instructed to pay themselves a weekly wage and leave the remaining money in their business.

Relative to the standard approach, the rules-of-thumb intervention has a significantly larger impact on business revenue, on whether small business owners keep accounting records and on whether business and personal cash is maintained separately.  These impacts are even larger for small business owners with initially lower levels of interest in training, ability and business practices. This innovative approach is currently being replicated with micro-entrepreneurs in India.

In a recent meta-review of financial education interventions and their impact, Fernandes and his co-authors (2014) add that just-in-time interventions linked to the uptake of a specific financial product may also return substantial payoff, although this in itself calls for further substantiation particularly in Uganda.

Nevertheless, these findings offer some mechanisms or at least point policymakers and planners to a starting point when it comes to considering the way in which financial education might be leveraged; whether they should just consider the timing of the intervention, or nuance of training, and product design, or both—to promote financial inclusion in Uganda.  Regardless of which strategy or program is adopted, it is important to carry out an evaluation. Randomised evaluations can offer better insights to determine the effectiveness or impacts of adopting certain knowledge programs and product features in enhancing uptake and usage. In the case of the woman with the printing business, her experience echoes that of others in Uganda who continue to shy away from formal banking services. Testing better approaches to financial education and product design is necessary, so that individuals can begin to choose which banking alternative best suits their situation and move from basic usage to improved investments. The scaling up of such programs could then allow for true inclusion.


Annette Kuteesa is a Research Fellow at Economic Policy Research Center (EPRC). She has since worked on issues regarding trade and regional integration. Email:

Corti Paul Lakuma is a Research Analyst at the Economic Policy Research Institute. Email:

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