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Driving financial inclusion

By Mwesigwa Herbert

Greater collaboration between telecom companies and financial institutions needed

There is a statistic that is so compelling it cannot be missed when it comes to the growth and usage of mobile phones especially in Uganda. In 2003, they were less than two million people with a mobile phone. In 2014, over 19 million own a phone. In a space of a little over a decade, mobile phone use has jumped from 3% to over 50% of the population.

Even more astonishing however, has been the growth of mobile money. The service launched in 2009 has grown from less than one million users in 2009 to over 17 million users in 2014. On the other hand, despite the increase in the number of banks from 14 since the moratorium on licensing commercial banks was lifted in 2007 to 25 currently, the number of Ugandans holding a bank account has largely stagnated between 18-21% of the population which translates to slightly over five million out of an estimated 34 million Ugandans.

To the majority of the population, banks are not easily accessible, convenient, or affordable. For the banks, the fixed costs of setting up branches especially in rural areas means that the venture is usually not cost-effective and therefore not economically viable.

The result of this is an under-banked population that has little or no access to credit, insurance or savings.

Financial inclusion, as defined by the United Nations, is “a financial sector that provides access to credit for all bankable people and firms, to insurance for all insurable people and firms, and to savings and payment services for everyone”.

Therefore, despite the wider accessibility of mobile money countrywide, it should not be construed to mean that the majority of people now have access to all the key ingredients of financial inclusion. Mobile money, in its current form, is essentially a system of sending and receiving money.

Financial inclusion can only be achieved through greater collaboration between the banks and telecommunications companies.

Contrary to popular opinion, the popularity of mobile money does not herald the demise of banks; it is an opportunity for building cross-sector partnerships that will lead to wholesome financial inclusion for Ugandans which is a key component of economic growth.

Some of these partnerships have already been established. For example, some banks offer mobile money services on their ATM platforms, allow depositing of funds on Agent or personal lines etc.

However this is still insufficient progress to bring the 17 million mobile money users into the banking fold. The key for banks is designing products that cater for your average mobile money user.

The major characteristic of a large number of mobile money users is that they transact in low values but with high frequency. For these users, the ability to transact at the lowest possible cost and in whatever amount is critical.

These people at current bank rates are certainly priced out of having a bank account. The price, for example, of transferring money either by EFT or RTGS between banks ranges from about 3,000 to 20,000 shillings. By contrast, sending money on the mobile money platform at the same relatively low values will cost anywhere between 700 to 4000 shillings.

This is where the banks have to innovate and cater for the needs of these low value customers and provide products and services that are tailor-made to suit these needs. Two of the products identified are responsive mobile banking platforms and operationalising the agency banking system. Both of these initiatives can extract lessons from the existing mobile money infrastructure in the country.

The primary role of telecommunications companies is to provide telecommunications services and, whereas mobile money has proved to be a successful disruptive technology, the fundamental focus for telecom firms has not really changed. It only remains to be seen whether banks and the industry regulator can fully utilise the new opportunities created by the mobile money phenomena to drive even greater financial inclusion for the Ugandan population.


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