FinScope 2018: The case for a deeper and more inclusive financial sector in Uganda
The FinScope Survey is often conducted to respond to a lack of information regarding the need for financial services. The study is designed to determine how individuals 16 years or older (i.e. adults) manage their money and the extent to which they use financial services to do so. The study also enhances monitoring changes in levels of financial inclusion over time. The 2018 FinScope survey was conducted in 316 Enumeration Areas, and 3002 adults responded. The weighted FinScope data represents an adult population of 18.6 million Ugandans.
The 2018 FinScope study shows that about 8 out of every 10 Ugandans are now financially included. In addition, more Ugandans are now accessing formal financial services than they were doing so in 2013. According to FinScope 2018, access to formal financial services increased 6 percentage points between 2013 and 2018 and currently, about 6 out every 10 Ugandans adults are now accessing formal financial services, as opposed to 5 out of 10 adults who were accessing formal financial services in 2013.
Findings from the 2018 FinScope survey show a divide between the rural and urban residents in access and usage of formal financial services. More urban residents accessing formal saving products than rural residents. Three out of every ten urban residents have access to formal savings compared to one out of every ten rural residents. Although access to informal financial service are reducing, rural residents continue to rely on informal saving mechanisms like the Village Savings and Credit Associations (VSLAs).
Significant success towards bridging gender gaps in financial inclusion appear to have been made in Uganda. About 8 out of every 10 women are reported to be financially included as of 2018, a similar figure to male who are included. However, a deeper examination reveals that there is a gap between access and usage of formal financial services as 6 out of every 10 men are formally serviced, compared to 5 out of 10 females who are included formally. More women than men rely mainly on informal financial services. Village Savings and Loan Associations (VSLAs) drive uptake of informal financial services and it provides access of financial services to 4 out 0f 10 women as opposed to 3 out of 10 men.
There is a positive relationship between the source of income and financial exclusion. This relationship is more evident for women than is it for men. FinScope 2018 show that about 4 out of the excluded women depend on family members for money, as opposed to only 2 out of 10 men.
Factors that hinder women from accessing formal financial services range from regulatory issues – Know Your Customer (KYC) requirements, to differences in financial and digital literacy levels between men and women and digital connectivity, especially regarding access to mobile phones and internet. According to the 2018 FinScope study, there is a 2%-point gap between men and women with respect to meeting KYC requirement. Also, 7 out of 10 of men who are included, have access to mobile phones, as opposed to 6 out of 10 of their female counterparts.
The role of informal channels such as Village Savings and Loan Associations (SLAs) in fostering financial inclusion should not be taken lightly. According to 2018 FinScope survey findings most adults save with and borrow from VSLAs. Four out of every 10 adults save with and five out of every 10 adults borrow from VSLAs. Ugandans are five times less likely to borrow from Savings and Credit Cooperatives Organizations (SACCOs) (3%), commercial banks (3%) and Micro-Finance Institutions (MFIs) (2%) compared to VSLAs. Despite the dominance of VSLAs bulk of the efforts towards increasing the financial inclusion frontier in Uganda have focused on formal financial institutions like commercial banks, microfinance and mobile money operators.
The FinScope survey provides market and regulatory insights for a wide variety of stakeholders. These stakeholders include: private sector providers of financial services, regulators, policy agencies and donors.
The FinScope 2018 findings highlights a cause and calls for deliberate efforts and interventions of the stakeholders above to bridge the rural urban divide. Reducing costs for financial services delivery, through shared infrastructure, utilizing technological innovations and providing services over digital platforms, and instituting policies, laws and regulations that allow for new business models and approaches to financial delivery are options to bridge the rural urban divide. Although similar deliberate interventions, which mentioned above also have high possibilities to enhance inclusion for women, it is notable that women have distinct financial services needs. For this reason, appropriate targeting for women is necessary.
Generally, levels of education and literacy are low. About 6 out of 10 adults have attained primary level of education. Levels of digital literacy are also low. Public investment in digital financial literacy are instrumental in enhancing the desired additional financial inclusion. Digital connectivity is also generally low, with on 1 out of 10 adults using the internet. This limits the application and scale of usage of internet powered financial services and products. Expansion of digital connectivity is another area recommended to target with relevant interventions.