Financial inclusion starts with visibility: What Uganda’s MSE Recovery Fund reveals about kYC and data

By the MicroSave Consulting Team

Financial inclusion starts with visibility. Before entrepreneurs can access credit, insurance, savings, or business support, they must first be recognised by the systems designed to serve them. Yet across much of Sub-Saharan Africa, millions of Micro and Small Enterprises (MSEs) remain invisible to formal financial institutions not because they lack viable businesses, but because the systems used to identify and assess them fail to capture their realities.

Know Your Customer (KYC) processes sit at the centre of this challenge. While designed to verify identity and manage risk, KYC systems also determine what financial institutions know about their customers and what they do not. When these systems are rigid, manual, or designed primarily for compliance, exclusion becomes embedded in the financial system itself.

Weak customer data systems contribute to exclusion in three ways:

• Invisibility: Entrepreneurs who do not fit standard categories remain unrecognised.
• Inefficiency: Manual processes slow approvals, increase costs, and introduce errors.
• Poor targeting: Without meaningful and disaggregated customer data, institutions struggle to design products that respond to different needs and circumstances.

The result is fewer customers served, weaker trust, and missed opportunities for both financial institutions and the entrepreneurs they seek to support.

The cost of invisibility

The human impact of weak customer data systems is visible in the lives of entrepreneurs across Uganda. In Seguku, John, a 38-year-old entrepreneur who has sustained 18 jobs for nearly two decades, risked being reduced to a single label because of his disability status, despite running a thriving business. In Nakivale Refugee Settlement, a young mother operating a tailoring business could easily have been excluded from financial services if her refugee documentation had been treated as invalid. In rural Kiwanga, Namirembe’s piggery and poultry enterprise was assessed using repayment assumptions better suited to retail businesses than seasonal agricultural enterprises.

These examples reveal a broader challenge. Financial exclusion is not always driven by a lack of capital or deliberate policy choices. Often, it begins with the information institutions collect, the categories they use, and the assumptions built into their systems.

The MSE Recovery Fund, implemented by a consortium led by FSD Uganda in partnership with the Mastercard Foundation, conducts regular Data Quality Assessments to verify the accuracy, completeness, and reliability of information reported by participating financial institutions. The assessments examine how institutions capture, manage, and report key indicators, particularly those relating to women, youth, refugees, and persons with disabilities.

The Fund’s 2025 Data Quality Assessment highlighted both progress and persistent challenges:

• Only 5 percent of participating financial institutions are fully digitised end-to-end, while 24 percent are partially digitised and 71 percent continue to rely largely on manual processes.
• The first Recovery Fund-supported financial institution to formally lend to refugees has opened the door for wider adoption, with another SACCO in the final stages of licensing with the Office of the Prime Minister.
• Persons with disabilities remain significantly underrepresented, accounting for just 0.77 percent of borrowers against a three percent target. While some institutions have piloted disability facilitators, many still do not systematically capture or apply disability data in lending decisions.
• Agricultural borrowers continue to face repayment structures that do not adequately reflect seasonal production cycles and income patterns.

The findings suggest that Uganda’s financial sector is moving in the right direction. However, progress remains fragile where customer information is incomplete, disconnected, or underutilised.

Why data architecture matters

Financial inclusion is often discussed in terms of products, capital, or distribution channels. Yet one of the most overlooked drivers of inclusion is data architecture the systems, processes, and information flows that determine how customers are identified, understood, and served.

One of the less visible but more significant contributions of the MSE Recovery Fund has been its influence on customer data systems.

Beyond providing capital, the Fund required participating financial institutions to strengthen their customer onboarding and reporting processes. Loan application forms were revised to capture information on disability status, refugee identity, gender, employee numbers, and sector-specific business characteristics. Institutions were encouraged to digitise onboarding processes, improving data quality and reducing administrative bottlenecks.

This seemingly simple change had important implications. It enabled participating financial institutions to make previously overlooked customer segments visible within their systems. Visibility, in turn, created opportunities for more informed lending decisions, improved reporting, and stronger accountability for inclusion outcomes.

The lesson is clear: the data institutions choose to collect shapes who becomes visible in the financial system, which risks can be assessed, and which opportunities can be financed.

Visibility creates opportunity

When customer data reflects reality, financial institutions are better positioned to serve diverse entrepreneurs.

For entrepreneurs like John, being assessed on the strength of a business rather than a label can unlock access to larger and more appropriate financing. For refugee entrepreneurs, recognition of refugee documentation as legitimate identification can open pathways to savings, credit, and business growth. For agricultural borrowers such as Namirembe, a better understanding of seasonal cash flows can support loan products that align with production cycles rather than undermine them.

Inclusive customer data systems also create broader benefits. They enable institutions to identify underserved groups, design more responsive products, strengthen risk management, and build trust with customers. Digital and interoperable KYC systems can reduce duplication, improve efficiency, and support stronger links with national identification systems, credit bureaus, and other trusted data sources. Importantly, stronger customer data does not simply improve reporting. It improves decision-making.

Building the Foundations for Inclusive Finance

For Uganda’s financial ecosystem to fully realise the benefits of inclusive customer data systems, four priorities stand out:

• Invest in interoperable digital systems: Financial institutions need platforms that can connect with national identification systems, credit bureaus, and other trusted data sources to support efficient and secure onboarding.
• Strengthen staff capacity: Frontline staff need the skills and awareness required to understand and respond to the realities of women, youth, refugees, persons with disabilities, and other underserved groups.
• Create incentives for inclusive innovation: Regulators and development partners can accelerate adoption by linking support mechanisms, guarantees, and innovation programmes to practices that strengthen inclusion.
• Use data to inform decisions: Customer information must move beyond compliance and reporting to influence product design, credit assessment, and risk management.

Inclusion starts with visibility

The future of financial inclusion will depend not only on how much capital reaches underserved entrepreneurs, but also on whether financial systems are designed to recognise them in the first place.

KYC remains an important part of that journey, but the broader lesson is about visibility. The information financial institutions collect determines who becomes visible, how risk is assessed, and ultimately who gains access to opportunity.

For Uganda’s financial sector, investing in inclusive and digital customer data systems is not simply an operational upgrade. It is foundational to building a more inclusive, resilient, and responsive financial ecosystem.

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