FinScope Uganda 2023 Survey Findings

FinScope Uganda 2023 Survey Findings

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    The 2023 FinScope, the fifth of its kind is implemented by the Bank of Uganda in partnership with Financial Sector Deepening Uganda, Uganda Bureau of Statistics, Abi Finance, the Ministry of Finance, Planning and Economic Development, and several other stakeholders and sheds light on various aspects of financial inclusion of Ugandans aged 16 and above.

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    Embracing digitalisation in agriculture for inclusive growth

    Embracing digitalisation in agriculture for inclusive growth

    By Geoffrey Okidi

    The COVID-19 pandemic was a wake-up call for businesses across various sectors to develop plans to ensure business continuity amidst disruptions of that magnitude. Most of these plans include embracing digitalisation.

    For economies such as Uganda’s which are heavily dependent on agriculture, Digitalisation in agriculture can be a sector game changer. Digitalisation for agriculture is the use of digital technologies, innovations, and data to transform business models and practices across the agricultural value chain. This in turn helps address bottlenecks in productivity, postharvest handling, market access, finance, and supply chain management. This aims to achieve greater income for smallholder farmers, improve food and nutrition security, build climate resilience, and expand the inclusion of youth and women.

    Financial Sector Deepening Uganda’s 2020 study on the impact of COVID-19 on agricultural finance in Uganda in September 2020 affirms the importance of digitalisation. The study points out that the lack of digitisation along the agricultural value chain exacerbated firm-level economic effects indirectly caused by COVID-19 measures. The study points out opportunities for digitisation that could have saved the day and fostered greater resilience to the impact of the COVID-19 lockdown measures. The study notes that there was a sudden growth in e-commerce (for example, door-to-door delivery) by 100 to 300 percent in some cases, albeit off a very low baseline, showing underlying demand for digitisation.

    According to McKinsey Global Institute’s 2016 study titled Digital Finance for All: Powering Inclusive Growth in Emerging Economies, digital technologies cut the cost of providing financial services by 80 to 90 percent.

    Findings of a similar study conducted by aBi Finance on the performance of SACCOs during COVID-19 lockdown are consistent with the McKinsey Global Institute Study. The aBi Finance study found that during the COVID-19 lockdown, fully digitalised SACCOs performed much better in terms of loan portfolio quality and savings mobilisation than their non-digitalised counterparts.

    Uganda and other East African countries have some of the most conducive conditions for increasing uptake of digital finance technologies in the agricultural sector (about 56 percent of adults are already using mobile money – FSD 2018). However, agricultural payments in Uganda remain predominantly cash-based and many people remain unbanked (Better Than Cash Alliance, 2017).

    To reap from the potential benefits of digitisation of the agricultural value chain, there is need to address the key challenges hindering it. According to the UN Capital Development Fund, the key challenges to digitalisation in Uganda are:

        • Low education levels, fluctuating incomes, price sensitivity/preference to pay with cash amongst many consumers
        • Formal financial exclusion and limited usage of available financial services
        • Limited infrastructure for digitalisation, for example, poor mobile network, high costs of mobile network expansion and maintenance
        • Gaps in the policy and regulatory environment, for example, SIM registration requirements were thought to limit smallholders’ access to mobile phones
        • Many agribusinesses do not have the internal systems in place to take advantage of digitalisation
        • Challenges in managing a national level digitalisation programme given diversity of languages across Uganda

    To accelerate transformation in the agriculture sector, hindrances to the adoption of digitalisation must be addressed. According to The Digitalisation of African Agriculture Report 2019, Digitalisation for Agriculture solutions are categorised into five primary use cases: (i) advisory and information services; (ii) market linkages; (iii) supply chain management; (iv) financial access and (v) macro-agricultural intelligence. The report highlights the recommendations below to stakeholders to address the challenges in digitalisation.

    Recommendations to address the challenges to digitalisation
    To improve use, drive greater inclusivity, impact and reap the benefits of digitalisation of agriculture, priority should be placed on the following:

        • Development of human capital at every level of the digitalisation for agriculture ecosystem, including increasing awareness of digitalisation for agriculture, improving digital literacy and, greater digital skill building among actors across the agricultural value chain
        • Driving greater business model sustainability by, for instance, improving value for farmers, identifying, and promoting successful business models and mobilising funding to support a more diverse set of companies
        • Creating greater impact by making digitalisation for agriculture solutions more inclusive of women and other marginalised groups, as well as smallholders in geographies with relatively less digitalisation for agriculture investment
        • Investment in the missing middleware infrastructure. Successful digitalisation for agriculture solutions require access to a wide range of data (from remote sensing data to farmer-specific data) to deliver high-quality services to farmers
        • Investment in good data stewardship and designing for the risks and limitations of digital systems
        • Investment in the digitalisation for agriculture knowledge agenda
        • Creating an alliance of key digitalisation for agriculture stakeholders to promote greater investment, knowledge sharing and partnership building
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    The Shared Agent Banking Platform is Increasing Financial Inclusion in Uganda

    The Shared Agent Banking Platform is Increasing Financial Inclusion in Uganda

    By Brenda Banura-Ssekalo

    Fast; there are hardly any queues. Convenient; agents are within the neighbourhood and open for longer hours than bank… These are some of the phrases customers use to describe agent banking. This is where bank customers can carry out transactions at contracted retail outlets known as bank agents. “I no longer have to spend money on transport to access the bank branch. My community now has an agent,” a customer in Eastern Uganda says. Thanks to shared agent banking, customers of one bank can make cash deposits and withdrawals at agents established and shared with another bank.

    Over four years since the first steps to create a shared agent banking platform, Financial Sector Deepening (FSD) Uganda is proud to report that as of 2022, 22 out of Uganda’s 25 commercial banks (Tier I) are part of the shared agent banking platform. This is in addition to one regulated financial institution in Tier II which category includes credit and finance companies.

    The journey to establishing a shared agent banking platform started in January 2016 when Uganda’s Parliament passed the Financial Institutions (Amendment) Act, 2016 which enabled banks to use agents to deliver their services across the country.

    In 2017, BoU released the agent banking regulations that provided a regulatory framework for agent banking services. The guidelines did not explicitly allow for a shared agent banking platform prompting the Uganda Bankers’ Association (UBA) to come up with the concept of a shared agent network within the existing agent banking framework, which concept BoU approved.

    UBA then approached FSD Uganda to bring the idea to fruition. Recognising the potential of this industry-driven initiative – the impact it would have on formal financial inclusion, customer choice and market competition, FSD Uganda was quick to come on board along with Consultative Group to Assist the Poor (CGAP), a think tank within the World Bank. The possibility of extending the reach of
    the financial services to the underserved, underbanked, and unbanked in rural, remote, and frontier markets made this worthwhile for FSD Uganda.

    FSD Uganda’s role in making the platform operational
    To get the process started, FSD Uganda brought together several banks interested in joining the platform, working with the industry to create a robust governance and participation framework, technical standards, and business model.

    In addition to providing technical assistance, FSD Uganda supported the initial set-up personnel required to establish the Agent Banking Company and the platform. FSD Uganda provided grants that helped to hire the project manager, oversee the project, develop the training curriculum that set the standards for agent recruitment and management for all banks, and train bank staff in deployment of the solution.

    Our initial support and the credibility of the agency helped crowd-in the support of multiple development partners and secure financial commitments towards providing further technical assistance to the initiative.

    On 25 April 2018, UBA launched the shared agent banking network with only two banks. The increase in the number of participants to 22 by 2022, saw 20,463 agents join the shared agent banking network. The platform has cumulatively processed 4.6 million transactions valued at UGX 5.14 trillion (USD 1.4 billion). 533,532 customers with bank accounts were served between January
    2020 and December 2020.

    Impact of the shared agent banking platform
    These numbers show that a shared agent banking network has significantly contributed to deepening access and enhancing the use and uptake of financial services even in rural areas, a key outcome for FSD Uganda. For example, an FSD Uganda study in collaboration with UBA and Uganda Christian University shows that between October 2019 and December 2020, the total number of agents in Hoima and Mbarara grew by 90%, and active agents by 69%.

    Through this network, competing banks ride on a shared technology platform and rather than competing on the reach of their agent networks, these banks compete on price, products, and agent and customer satisfaction. Agents on the platform provide various services such as cash deposits and withdrawals, inter-bank transfers, utility payments, and statutory payments among others. The reduced cost of service delivery enables banks increase their reach, a win for enhancement of financial inclusion. Ease of operation also broadens customer choice and shifts market competition from reach to quality of service.

    Varghese Thambi, CEO of Diamond Trust Bank (DTB) considers the platform advantageous because it significantly reduced the cost of reaching DTB account holders and general customers in  the banking sector.

    This innovation has helped banks to serve under-served populations better by facilitating Ugandans to open accounts with participating banks from their neighbourhoods. This is especially so in the urban and peri-urban areas where 95% of the agents are based.

    In the rural areas, the shared agent banking network has enabled the proximity of access points to women who are less likely to be financially included than men and created income opportunities for youth and rural populations to serve as agents.

    The future of the shared banking agent platform
    At the time of establishing the shared platform, Uganda’s mobile money had matured so much that the mobile money agents outnumbered bank branch and Automated Teller Machine access points by nearly 100 times.

    A go-ahead to establish the shared platform gave financial institutions an opportunity to level up to the telecommunication companies. To achieve this, several things must happen. Connectivity infrastructure needs to be improved, and pricing models and stakeholder compensation need to be integrated, among others. The participating financial and non-financial institutions and agents being
    on-boarded also need to increase.

    A few banks reported closing some of their branches which are more expensive to operate to focus on enhancing financial access through the platform. As more agents sign on to the shared agent banking platform, the program will work to deploy at least 615 agents or more for every 100,000 people.

    The shared agent banking network still has a long way to go, especially in rural and remote areas where most that are financially excluded reside. But the journey has begun and by the look of things, it will only go forward.

    For more information, read FSD Uganda’s ‘Making elephants dance’ – The pioneering journey of Uganda’s shared agent banking network.

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    Highlights on Agent Banking Services in Western Uganda (Mbarara and Hoima Districts)

    Highlights on Agent Banking Services in Western Uganda (Mbarara and Hoima Districts)

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      This report assesses uptake and usage of agent banking and the effect of COVID-19 on shared banking services in two districts, Mbarara and Hoima. The research was conducted by Uganda Christian University in partnership with Uganda Bankers’ Association (UBA) and the Agent Banking Company (ABC) Uganda Ltd.

      Through this initiative, Financial Sector Deepening (FSD) Uganda is facilitating collaboration between local industry associations and universities to promote contextually relevant research. The study is part of FSD Uganda’s industry capacity building programs reinforcing that industry associations play a critical role in advancing and developing inclusive financial markets.

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      Covid – 19 Market Diagnostics and Options for Long-Term Recovery (Supply – Side Report)

      Covid – 19 Market Diagnostics and Options for Long-Term Recovery (Supply – Side Report)

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        The overall objective of the study was to develop practical solutions for preserving and building relevant elements of the financial system to support the survival, recovery, and growth of micro and small enterprises (MSEs) in Uganda. The core of the market analysis was to understand how the supply of finance to the MSE sector in Uganda had been affected by the COVID-19 crisis and what options were available to build on ready measures to mitigate the impact. This analysis identified both threats and opportunities for inclusive finance service providers (IFSPs) to meet the financing needs of MSEs.

        With the support of the Association of Microfinance Institutions of Uganda (AMFIU) and with some direct provision of information by IFSPs, the study team had detailed operational and financial information on 30 SACCOs and 11 MFIs. Due to confidentiality/nondisclosure policies, AMFIU provided anonymous data, stating only the region in which the entity operates and its institutional form.

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        Covid – 19 Market Diagnostics and Options for Long-Term Recovery (Demand- Side Report)

        Covid – 19 Market Diagnostics and Options for Long-Term Recovery (Demand- Side Report)

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          The COVID-19 pandemic has had significant impact on the Ugandan economy especially hitting the micro- and small enterprises (MSEs) in the informal sector. MSEs have been facing unprecedented income losses and uncertainties about their future because of business disruptions due to the outbreak of COVID-19.

          FSD Uganda commissioned a demand side market diagnostic study to assess the impact of COVID-19 on micro and small enterprises in Uganda. The overall objective was to develop practical solutions to preserve and build relevant elements of the financial system to support the survival, recovery and growth of micro and small enterprises in Uganda.

          From the research, only 3% MSEs reported to be completely recovered. 71% of the surveyed MSEs are yet to return to normal pre-COVID-19 operations timing. Several factors such as reduced hours of operation, disruptions in movement, and general low customer turnout have impacted the businesses severely.
          MSE owners hope to bounce back, however, some issues continue to plague the recovery of enterprises. These include, on an average 50% of reduction in household income due to low revenue from the business, job losses in the family, or depletion of other income sources hit by the pandemic.

          Women-led enterprises have suffered a greater average loss in income (50%) compared to men-owned MSEs (33%) from the pre-pandemic level of income. Also, while MSEs in urban areas have been able to attain 57% of the pre-pandemic income level, MSEs in rural areas have recovered up to 50% of the pre-pandemic income level.

          As per the estimates of the World Bank, the COVID-19 crisis has pushed around 2.6 million Ugandans into poverty. With longest closure of schools in Uganda, not only the education sector but many other businesses providing services in the ecosystem suffer a great deal in their bid to recovery to pre-pandemic level.

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          The Overall Impact of COVID on The Economy; An Agile Scenario Analysis

          The Overall Impact of COVID on The Economy; An Agile Scenario Analysis

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            This agile scenario analysis conducted in partnership with the Ministry of Finance, Planning and Economic Development and The Bank of Uganda explored the potential short and mid-term economic effects the pandemic would have on the key labour segments. Using additional insights from ongoing economic recovery efforts, the team also identified the potential role various sectors could play in strengthening the inclusiveness of the country’s recovery efforts.

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            The Impact of COVID on Agriculture in Uganda

            The Impact of COVID on Agriculture in Uganda

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              Earlier studies conducted by FSD Uganda indicate that specific segments of the population – including people who directly or indirectly rely on farming – will be severely affected by the impact of COVID-19 pandemic. We conducted a rapid diagnostic to understand how agricultural finance in Uganda has been affected, to inform financial market-led recovery efforts. Findings from the study have been used to strengthen FSD Uganda’s new five-year agricultural portfolio.

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              Assessing the Economic Resilience of Ugandan Households During COVID

              Assessing the Economic Resilience of Ugandan Households During COVID

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                This phone-based survey conducted between April 2020 to September 2020 over five waves provides a detailed analysis on the resilience of the sample surveyed. It demonstrated:

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                Highlights: Impact of COVID-19 on the economic resilience and financial behaviour of Ugandans

                Highlights: Impact of COVID-19 on the economic resilience and financial behaviour of Ugandans

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                  FSD Uganda partnered with the Ministry of Finance, Planning & Economic Development and undertook a COVID-19 tracker survey which traced the impact of COVID-19 on livelihoods, financial behavior, and social responses of Ugandans. The phone-based survey was conducted in 5 waves between April and September 2020.

                  Similar surveys were conducted by the FSD Network in Kenya, Rwanda, South Africa, Nigeria, Zambia, and Ghana. The COVID-19 Tracker explored composite data sets from across the continent.

                  This highlights document is based on an analysis of data from the five waves of the tracker survey and presents insights on how the pandemic continues to affect Ugandan adults across several domains.

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                  Cooperatives as Engines of Transformation

                  Cooperatives as Engines of Transformation

                  By Anthea Paelo

                  Cooperatives continue to be an important engine for economic productivity and growth in countries like Uganda. They play a critical role in mobilizing savings, increasing access to credit, and facilitate various activities along production value chains, including procurement, storage and distribution. Where, for example, a farmer might find it challenging to access a tractor to plough his fields, or credit to purchase seeds, as a part of a cooperative he can access these inputs more readily and at much better terms. It is perhaps for this reason that as of January 2020, agricultural cooperatives numbered over 9,000, double the number just twelve years ago1.

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                  Determinants of Interest Rate Spreads in the Ugandan Banking System

                  Determinants of Interest Rate Spreads in the Ugandan Banking System

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                    FSD Uganda Executive Director made a presentation as a discussant at the Bank of Uganda (BoU) and International Growth Centre (IGC) Policy Seminar on lending rates. Download the presentation to find out about why we should care about bank interest rate spreads and how it affects every day Ugandans and Ugandan businesses.

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                    Government to Person (G2P) Payment Guidelines

                    Government to Person (G2P) Payment Guidelines

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                      Financial Sector Deepening (FSD) Uganda is the country’s leading institution on financial inclusion and inclusive financial market development. FSD Uganda provides technical assistance and catalytic grants to enable innovation and scale.

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                      Market Research on Unsecured Lending for MSMEs

                      Market Research on Unsecured Lending for MSMEs

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                        Micro, small, and medium enterprises (MSMEs) (including smallholder farmers) struggle to access formal credit due to a lack of collateral and poor record keeping preventing them from making productive investments.

                        FSD Uganda works to build inclusive credit market infrastructure to address the retail and business credit gap. FSD Uganda commissioned a study about unsecured lending to MSMEs in high density markets in Kampala, aimed at understanding the demand and supply challenges in accessing working capital. Examples of high-density markets include: Owino, Nakawa and Kalerwe markets.

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                        Strengthening the effectiveness of Uganda’s consumer protection framework

                        Strengthening the effectiveness of Uganda’s consumer protection framework

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                          An assessment of credit cost disclosures
                          There is a need to promote trust in the financial sector by putting robust consumer protection measures in place – this will help protect lower-income borrowers from poor market conduct and bridge the credit gap in the market.

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                          Message from FSD Uganda Executive Director on COVID-19

                          Message from FSD Uganda Executive Director on COVID-19

                          Uganda confirmed its first case of COVID-19 this weekend. The Government of Uganda, together with private sector actors, continue to demonstrate great leadership by putting in place and adopting progressive measures aimed at protecting Ugandans and limiting the impact of the pandemic.

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