Mitigating the Impact of Covid on Gains in Financial Inclusion

By Jackie Kitiibwa

COVID-19 has been a significant setback for the development plans of many countries. The global recession that has been developing alongside the ongoing health crisis has not only intensified existing inequalities but also threatens to set back decades of economic growth and poverty reduction in emerging and developing economies.

The widespread lockdowns and social distancing controls employed as a necessary response to the pandemic led to massive disruptions that threatened to erode the gains made in financial inclusion. As a result, many segments of the population, households, and businesses experienced a significant loss of revenue and struggled to maintain their lifestyles or operations. According to the World Bank, 90 million people fell into extreme poverty globally in 2020. This is especially true for those at the bottom of the economic pyramid who were always a hospital bill, or fire away from falling into poverty and for whom the lockdown and resulting economic slowdown meant less income and increasing debt.

An initial FSDU analysis of the impact of the Covid-19 pandemic on households showed that more than half of the adults in Uganda were unable to sustain their lifestyle during the lockdown, 28% had no coping mechanism, and almost a quarter would lose 100% of their income by the end of the lockdown1.

The impact of the pandemic was felt excessively by women. Evidence from Uganda indicates that violence against women and girls intensified during the pandemic. Sexual violence, teenage pregnancy, and early marriages were seen to increase. In addition, a study by McKinsey2 suggests that women were almost twice as likely as men to have lost a job during the pandemic. This is due to many reasons, some of which include the over-representation of women in some of the sectors that were hardest hit like the retail industry, but also cultural and societal norms that necessitated women to stay at home whilst children were out of school.

Also, Micro, Small and Medium Enterprises (MSMEs) were severely affected. Many enterprises downscaled to reduce operating expenses while others closed entirely. Consequently, there was a significant rise in unemployment. Furthermore, because the majority of paid workers are employed in the informal sector with no formal contracts or social security, most layoffs were done without terminal benefits.

Even with the impressive adoption of technology seen during the pandemic, only a tiny fraction of the working population in the formal sector could successfully transition to remote work. Informal sector employees such as waiters, security guards, and drivers were unable to work from home. Additionally, the stimulus package established by Government to support households and firms was disproportionately urban-focused.

To recover and build resilience after the COVID-19 pandemic, and to achieve greater financial inclusion, Government and the private sector need to:

1. Promote the use of digital technologies

The importance of digital access and digital skills for social inclusion has been evident to most over the past decade. However, a global pandemic has reinforced the need to examine gaps in our policies and the ground reality. New technologies have proven effective in increasing the use of regulated digital channels, but more needs to be done to improve access and use, particularly in rural areas where they are most important. The role of the private sector is critical in this global effort to expand opportunities and provide more options for millions of people.
Since the pandemic, more people are managing their finances online; buying and selling on e-commerce platforms and social media; and finding work through the gig platform. Fintech and agritech companies offer highly targeted and customized products to different segments of the informal economy. They also create the building blocks of e-commerce and value chain eco-systems which do not currently exist or are highly inefficient and manual.

For example, we have seen financial service providers offer digital micro-lending to small businesses within the value chains of large suppliers. Also, Fintechs are digitizing the agriculture value chain using cloud-based technologies to help cooperatives efficiently manage recordkeeping and their day-to-day operations and use these digital trails to offer credit to thousands of farmers.

Obviously, all this should be supported by robust digital ID systems, mobile communications, and digital payment systems. In India, because the government had previously heavily invested in a universal ID programme – the government was able to quickly and safely send much needed social payments to hundreds of millions of Indians across the country during the pandemic.

2. Effective deployment of capital

Some of the measures Government instituted to minimise the adverse effects of the crisis to economic activity included expanding the lending capacity of key financial institutions like the Uganda Development Bank (UDB) and providing exceptional liquidity assistance to supervised financial institutions that were in distress. However, these financial institutions are never well-placed and do not have the incentives to serve the informal sector which comprises 87 per cent of the urban working population. As such, relief funds channelled through these large financial institutions did not reach low-income households or small businesses.

To this end, Financial Sector Deepening (FSD) Uganda has partnered with the MasterCard Foundation to set up a Covid-19 recovery Fund out of which small businesses – primarily women and youth-owned or led – will access loans at concessional rates through Tier III and Tier IV financial institutions. The Fund not only aims to sustain small enterprises and protect jobs but also provide a more sustainable economic recovery way beyond the crisis.

3. Leveraging cooperatives and other business collective groups as an inclusive economic platform

Many cooperatives are engaged in agro-processing and value addition activities at different levels of the value chain. Most of these activities have significant backward and forward linkages to the informal sector. By leveraging the power of technology platforms, government, the private sector and development partners can bring together different players to enhance the productivity and incomes for smallholder farmers and Micro, Small and Medium Enterprises (MSMEs).

These technology platforms have the potential to create economies of scale and scope resulting from cost savings and increase in aggregated production and increase in diversity of goods and services provided on the platform. Beyond providing agricultural inputs and business stock these platforms can provide small holder farmers and MSMEs with a wider range of services including education, healthcare, and digital merchant payments.

Policy makers, regulators, development partners and financial sector players need to act fast in designing responses that are focused and make the most of available resources. In the right setting, supported by with an enabling environment – policy and regulation, solid and effective institutions, and appropriate consumer protection frameworks and empowered customers – these initiatives will help build back better from the economic devastation of the Pandemic while laying stronger foundations for future resilience and sustainability.


  1. FSD Uganda (2020) Assessing the Resilience of Ugandan Households Before Covid-19. – 
  2. McKinsey (2020) COVID-19 and gender equality: Countering the regressive effects.

— This article was first published in the Financial Services Limited magazine —

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