Uganda has made gains in financial inclusion – Citibank

By William Lubuulwa

What is inclusive finance?

According to The World Bank’s Global Findex Database, approximately two billion adults are unbanked – lacking ownership of a basic safe and affordable banking account. Inclusive finance encompasses the policies, regulations, financial products and services, and partnerships that aim to achieve universal access to appropriate financial products like savings accounts, payments, insurance, or microloans that support the needs of households and small business.

In recent years, through various action plans and initiatives like the Global Partnership for Financial Inclusion, G20 leaders have promoted inclusive finance as an increasingly important component for accelerating economic growth. Countries such as Uganda and others in East Africa have long been focused on supporting financial inclusion.

Are there policy issues in developing economies that affect inclusion?
Central government policies can have a significant impact in accelerating greater financial inclusion, through progressive regulations, support for innovative new platforms for inclusion that extend beyond the traditional financial sector and by integrating financial inclusion into broader national economic strategies and investments.

According to the Economist’s 2016 Global Microscope report, two of Africa’s most supportive government environments for financial inclusion are Tanzania and Kenya. Both countries have adopted policies and regulations that have led to their having the highest usage levels for receiving mobile money (66.7 per cent in Kenya, 19.6 per cent in Tanzania). It’s noteworthy that Uganda recently launched its National Financial Inclusion Strategy in October 2017.
These kinds of regulatory approaches to expanding inclusion are catching on around the world.

Has Citi taken any steps to address financial exclusion in the markets it serves?
Citi understands that successfully addressing the challenges of financial exclusion – which encompass obstacles to access, affordability and household financial resiliency – requires deep collaboration across the public, private, community and nonprofit sectors to develop innovative programmes, products and services that expand financial access.
For decades, both philanthropically and through its businesses, Citi has played a leading role in contributing to these cross-sector efforts to support greater financial education, capability, enabling regulations, the microfinance sector and the emergency of new technologies.

Citi works in partnership with clients, government, multinational agencies and non-profit organisations to support the development of innovative partnerships, products and programmes that often align with policy priorities aimed at expanding financial access, affordability and resiliency. One central feature in Citi’s strategy is that investments that make positive economic and social impact are embedded into our core businesses, policies and partnerships.

We also fund microfinance institutions that expand access to finance to underserved communities. Globally and in partnership with Overseas Private Investment Corporation of US, Citi has funded close to $450m (Shs1.6 trillion) across nearly 50 microfinance institutions in 25 countries. These local currency investments have reached more than 1.3 million micro-borrowers, of whom 88 per cent are women. In 2017, more than 50 per cent of our funding to microfinance institutions was in sub-Sahara Africa.

Innovations in the industry dictate that banks digitise as much as possible. Isn’t technology disrupting financial inclusion in the world?
Digitisation is a core element of Citi’s strategy. But our goal is to apply technology thoughtfully, as a means of expanding financial inclusion in a way that increases security, transparency and reliability.
An excellent recent example is our partnership with the One Acre Fund, a nonprofit organisation offering microloans to small farmers in East Africa. The loans give farmers access to financing for farm inputs – primarily seeds and fertiliser – plus training in agriculture techniques and ways to better market their products and maximise their profit.
In partnership with our Citi Kenya and Citi Inclusive Finance units, One Acre Fund recently introduced the use of the digitally mobile money service M-Pesa for loan repayments, replacing the previous cash-based system.

The change to digital payments has benefited the farmers on many levels. Farmers reported a unanimous preference for the digital payments instead of cash in great part related to convenience, transparency, and safety. In addition, farmers and One Acre Fund were also freed from the burden of a long process and higher processing costs, and the system is much less prone to fraud.

Many people urge that banking requirements for individuals to open bank accounts hinder inclusion. Is this a fair assessment?
Being “banked” isn’t just about opening a formal account at your local branch – something that many people in the countries we serve will never experience. The process of providing individuals and small businesses with access to the mainstream financial system has been transformed and designed to meet their specific needs, without introducing new or excessive barriers to entry, as in both cases the integration of mobile, agent and bank services provide the solution to their needs and at a relatively low cost in terms of time and fees.

Do you think Uganda has made any achievements in the drive towards an inclusive economy?
The World Bank’s latest Global Findex data reports a promising trend of increased uptake across Sub-Saharan Africa, with 13 per cent more people getting access to an account between 2011 and 2014. Uganda has made even bigger gains: 44.4 per cent of Ugandans now have an account, more than double in 2011.This appears to be largely driven by mobile money accounts, which 38 per cent of people in Uganda have.

In terms of gender inclusion, while Uganda still has a long way to close the financial access gender gap; women are banked at a higher rate (36.6 per cent) in Uganda than in the Sub-Saharan region at large (30 per cent).
Uganda was one of the early leaders in recognising microfinance as a unique industry. Bank of Uganda has a dedicated team supervising Non-Bank Financial Institutions including microfinance. Uganda has also recently launched its National Financial Inclusion Strategy (NFIS) 2017 – 2022. NFIS entails that “all Ugandans have access to, and use of, a broad range of quality and affordable financial services which helps ensure their financial security”. The NFIS seeks to reduce financial exclusion from 15 to five per cent by 2022.

When we started working with microfinance institutions in Uganda, some were NGOs or MDIs and many owned by international NGOs. Over the years, we have seen local microfinance institutions transform to banks and significant acquisition of MFIs by global FinTech companies. These transformations are evidence of maturing organisations and regulatory environment in expanding access to finance.

What are the risks and challenges developing markets such as Uganda face in trying to bring everybody on board?
Developing markets have to juggle many priorities at the same time. While continuing to build infrastructure and diversify the economy, citizens have an expectation of services from their governments. Trying to balance all of the priorities remains a significant challenge for emerging economies.

Briefly share with us what you think the future of financial inclusion in sub-Saharan Africa is.
Financial inclusion on the continent has come a long way. Organisations that once were NGOs or building societies are now some of the largest regulated banks and serving large populations. Technology has also changed the nature of partnerships and opportunities for expanding access, and there is still more to come.

The future is a multipolar payment world with mobile payments and agent networks enabling deeper penetration. Beyond expanding access to finance this payment gateway will enable delivery of non-financial services, including energy, healthcare and education.

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