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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    Measuring Women Financial Inclusion Toolkit for Uganda

    Measuring Women Financial Inclusion Toolkit for Uganda

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      The gender gap in account ownership has significantly narrowed in Uganda. In 2021, approximately 65% of women had an account at a formal financial institution or a mobile money account, compared to 67% of men, according to Findex data. It positions Uganda as one of the countries with the lowest gender gaps in Africa. However, despite this progress, significant disparities in account usage persist. For example, women are more likely than men to rely on informal institutions for savings and borrowings.

      Several gender-specific barriers contribute to this situation, including prevailing gender norms, limited access to and control over economic resources, lack of knowledge, geographical and technological constraints, and stringent loan requirements. Reliable and comprehensive gender data is needed to gain in-depth understanding of gender disparities, inform policy and program development and monitor progress, better address the women segment as customers and support advocacy for gender equality.

      This toolkit aims at providing practical tips to measure women financial inclusion in Uganda using a four-fold approach

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      Rapid Assessment of the Feasibility of a National Long-term Savings Scheme

      Rapid Assessment of the Feasibility of a National Long-term Savings Scheme

      Summary report

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        Detailed report

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          Uganda’s informal sector has shown a wealth of unrealised entrepreneurial potential. It ranked the third highest in (Global Entrepreneurship Monitor, 2014) due to 28% of adults owning or co-owning a new business. Though, the study did also reveal that Uganda had some of the highest rates of business discontinuation in the world.

          Mobilizing savings is crucial for the welfare of Uganda’s informal sector workers. It offers advantages like capital accumulation, funding for productive investments in human and business capital, fostering enterprise growth, providing insurance against risks, and enhancing financial stability and livelihoods for households.

          The informal sector in Uganda is not oblivious to the importance of saving. In the 2023 survey, it was uncovered that respondents actively saved for rainy days such as if they become incapacitated from work, face illnesses or other family emergencies that require financial aid. Despite the active saving behaviour and awareness of the importance of saving among individuals in the informal sector, there is still low adoption of long-term/retirement schemes. The National Financial Inclusion Strategy 2023 – 2027 (NFIS II) (NFIS, 2023) highlighted that Uganda’s retirement sector predominantly targets individuals who are formally employed, largely excluding the informal sector. When combined with the fact that they face uncertain employment and income, their exclusion from long-term/retirement schemes makes them more susceptible to poverty.

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          Empowering Micro, Small, and Medium Enterprises: The Influence of Microfinance Group Lending

          Empowering Micro, Small, and Medium Enterprises: The Influence of Microfinance Group Lending

          By the MicroSave Consulting and FSD Uganda teams

          Across the globe, the lack of collateral is a primary barrier that economically excludes individuals notably young people especially women from accessing formal banking services. To get around this obstacle, the underserved population has resorted to establishing informal community-based financial systems to fulfill their financial requirements. These alternative arrangements, such as Village Savings and Loans Associations, Rotating Savings and Credit Associations, and Table Banking, have emerged as a means for the marginalised to access the financial resources they lack from traditional banking institutions. To extend financial services to the underbanked and unbanked, formal financial institutions have emulated and adopted some of the positive practices in the informal financial systems.

          Informal or formal, financial institutions that offer loans use one of two approaches, individual or group lending. This is the same with the Tier III and IV financial institutions that are on-lending under the Mastercard Foundation Micro and Small Enterprises (MSE) Recovery Fund, a five-year program implemented in partnership with the Financial Sector Deepening Uganda. This initiative was launched in February 2022 and is under the Young Africa Works strategy, which seeks to facilitate direct access to finance 50,000 MSEs (at least 40% women, 30% youth). Designed during the aftermath of the COVID-19 pandemic, this revolving fund provides concessional capital to participating financial institutions for onward lending to micro, small, and medium enterprises negatively impacted at a reduced borrowing rate. The participating financial institutions follow their in-house credit processes to assess the enterprises given their needs.

          Group lending vs individual lending

          The Fund is working with both Tier 3 and Tier 4 financial institutions. Based on the data so far, one Tier 3 Microfinance institution has effectively employed the group lending methodology for a broader client outreach. Since the Fund’s commencement (just under two years), over 26,000 MSEs have successfully accessed credit, and 60% of this has been disbursed by the Microfinance, a testament to its distinctive strategy. The Microfinance has disbursed UGX 7 billion to 16,166 majority of them youth and women-led enterprises within 12 months. Conversely, two SACCOs that employ an individual lending approach, have managed to extend credit to 842 and 503 enterprises and disbursed UShs 3.4 billion and UShs 2.25 billion respectively within 12 months.

          For both approaches, the critical difference is in the collateral criteria. With group lending, all that’s needed is a group guarantee, unlike individual lending products that demand traditional collateral. The Microfinance’s group methodology

          explores unique features that have positively impacted young people, especially women, and offers lessons for other financial institutions: Here is what makes this institution’s group lending approach work.

          How the Mircofinance’s group lending approach works

          Central to the approach is that the institution has dealt with the access to finance obstacle created by the need for traditional collateral. To do this, the institution employs the segmented and combined group strategy, coupled with the delegation of credit approval authority to group members.

          To implement this, the Microfinance employs a two-fold group methodology: branch-based and community-based groups. The former gathers at the bank, while the latter convenes locally, delivering tailored flexibility to diverse client needs.

          The institution looks out for people organised in groups and creates sub-groups of six to seven members to whom loans are exclusively accessible. These sub-groups operate like well-coordinated “cabinets,” complete with designated leaders. This structure not only encourages governance but also strengthens bonds among members. The institution’s loan officers play a modest role in the lending process. Group members collectively greenlight loans without the intervention of the bank. This empowers the groups, enabling them to take charge of credit underwriting, member selection, and loan recovery. This proactive approach ensures that disbursed amounts grow, and the quality of loans improves over time.

          Once the groups have been formed, members of branch-based groups can access loans up to UShs 5 million per member without the need for collateral. On the other hand, community-based groups can borrow up to UShs 3 million per member, securing approvals at the group level—an embodiment of the Microfinace’s dedication to client empowerment. For more substantial loan amounts, up to UShs 30 million, collateral is a requisite to manage potential risks. This balanced approach ensures that prudent risk mitigation measures are also upheld while empowering clients

          A client’s story

          Emily a 28-year-old tailor in Bukoto whose business was adversely affected by the Covid-19 pandemic is one of the Microfinance’s clients served under the group ledning model. Her faulty manual sewing machine didn’t help matters as it affected her output’s quality, efficiency, and income so much that she could hardly meet her daily basic needs. “Things changed when through my savings group which banks with the Microfinance, I received a loan of UGX 800,000 and bought an electric sewing machine,” she says.

          The tailor is now efficient, and her turnaround time has been reduced from three hours to one hour for some jobs. “This has helped me regain my client’s confidence and also get new clients. I now make at least UGX 15,000 daily and I can meet all my basic needs. This wasn’t the case before when I made no money on many days and had to skip some meals and move in with a relative because I couldn’t afford rent. Because of the increased volume of work, Emily is planning to employ one other person to support her.

          As a result, this dynamic formula has enabled the bank to extend credit to a broader spectrum of customers, especially women and youth who lack conventional collateral. Given that women are more likely to belong to groups, the group lending approach is one that financial institutions from Tier 1 to IV should learn from and integrate in order to reach young people, especially women

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          Savings and Investments by the Low Income Segment in Capital Markets: A Case Of XENO

          Savings and Investments by the Low Income Segment in Capital Markets: A Case Of XENO

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            This report shares findings from a pilot intervention on savings and investments by the low income segment in capital markets. In this pilot, FSD Uganda focused on testing the viability of leveraging mobile phone and mobile telecommunications technology to increase access to investment products by the low income investor market segment. The intervention ran for two years and sought to address the problem of limited and or no access to financial investment products such as collective investment schemes (CIS) among the low income market segment.

            For this pilot, we partnered with XENO a licensed fund manager and collective investment schemes manager regulated by the Capital Markets Authority (CMA) and the Uganda Retirement Benefits Regulatory Authority.

            Three major drivers of this limited access to financial investment products were identified at the intervention design stage; low levels of income, cumbersome Know-Your-Customer processes at the time of on-boarding of the customer, and the limited accessibility of the customer engagement points.

            XENO sought to address this problem by leveraging the mobile phone to increase accessibility and designing a more appropriate product that would make it easier for the low-income market segment to actively participate in the CIS market.

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            Supporting refugees to find freedom by expanding access to finance

            Supporting refugees to find freedom by expanding access to finance

            “Independence”, “having the power or right”, and “liberty”, are some of the phrases that describe freedom. This year’s World Refugee Day theme is ‘finding freedom’ and access to financial services is a key component to achieving that once refugees resettle so that they become self-reliant and economically independent.

            Though important, little has been known about the financial strategies employed by refugees over time to build their livelihoods and manage their finances.

            To learn more, the Financial Sector Deepening (FSD) Uganda and FSD Africa commissioned the Financial Inclusion for Refugees (FI4R) project. The project aimed at deepening and broadening access to and usage of formal financial services among refugee and host communities in Uganda, with a focus on the West Nile and South-West regions. The project also had a learning and research component to assess refugees’ incomes and expenses to inform the development of financial products and services offered to them in Uganda.

            Consequently, the project supported three financial institutions; Rural Finance Initiative (RUFI), VisionFund Uganda, and Equity Bank Uganda Limited to rectify this grim situation by enabling them to offer a variety of savings and credit products as well as financial literacy programmes to refugee groups in the target areas.

            Florence is one of many refugees who benefited from the Financial Inclusion for Refugees project by getting a RUFI loan through her savings group. The single mother of two who lives in the Palorinya refugee settlement in Moyo district arrived in the settlement five years ago from South Sudan. She is a tailor belonging to three saving groups where she saves Ushs 4,000 (1.04USD) and Ushs 20,000 (5.2USD) weekly in each group.

            She used the loan as capital for her business and continued to save money together with her group so that she can later purchase stock.

            Over a period of 12 months, Florence has increased her contributions to the savings group as she has realised saving diligently is essential to growing her business.

            Through its implementation, the project addressed some of the key barriers to increasing access to financial services for refugees including, low-risk appetite among the financial service providers highlighted by the limited appreciation of refugees as a potential market and underdeveloped ecosystems where there is high reliance on saving groups and limited adoption of formal financial services.

            In addition to evaluating the impact of financial services on refugee livelihoods in Uganda, the learning and research component also provided insights for financial institutions on how to improve access to financial services in the refugee settlements.

            The project endline study reports that Ushs 7.6 bn was disbursed in loans by the three financial institutions to savings groups. Additionally, over Ushs 12 bn was deposited in savings accounts with three financial institutions.

            Florence’s experience and the endline report numbers demonstrate that refugees are a viable market segment. For that to be fully exploited, respondents’ reasons for hesitation to use formal financial services must be tackled.

            Interested commercial banks and micro-financial institutions should therefore improve access by deploying more agents in the different villages of the settlement. This is in place of having a few agents in the major trading centers which are far away from the settlements.

            Additionally, information regarding details of products and services offered including interest rates, fees, and prerequisites should be availed and simplified even when services are offered digitally.

            Further, the high transactional costs of using mobile money should be revised as these were sighted as a reason for limited or avoidance of usage.

            When these adjustments are made, financial service providers will register transactions worth more than the recorded Ushs 7.6 bn and Ushs 12 bn in loans and deposits/savings respectively in the two years of the Financial Inclusion for Refugees project’s implementation. This will make financial inclusion for refugees and host communities a win-win for financial service providers whose decisions are profit based as well as the target market segment.

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            Ensuring Resilience in the Supply of Agricultural Finance amidst the COVID-19 Pandemic: Lessons from the Integrated Cooperative Model.

            Ensuring Resilience in the Supply of Agricultural Finance amidst the COVID-19 Pandemic: Lessons from the Integrated Cooperative Model.

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              COVID-19 disrupted the supply chains of the agricultural sector. Much as farming was one of the essential services that were exempted from the government lockdown measures, the distribution of the agricultural produce was limited due to restrictions on movement during the lockdown.

              Over the last decade there has been an increased emphasis on cooperative development which has resulted in exponential growth in the Savings and Credit Cooperative Organizations (SACCOs). However, SACCOs are insufficient in addressing the financing challenges of agriculture because they are limited in how far they can mitigate against the risks inherent in agriculture.

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              FI4R Diaries Round IV Insights: Gender

              FI4R Diaries Round IV Insights: Gender

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                This is the final(part four) of an ongoing series of insights from a financial diaries study undertaken with refugees in Uganda, focused on their ability to cope with risks. The respondents are drawn from customers served by three financial service providers: Equity Bank Uganda, VisionFund Uganda, and the Rural Finance Initiative.

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                FI4R Diaries Round III Insights: Digitization of Saving Groups

                FI4R Diaries Round III Insights: Digitization of Saving Groups

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                  This is part three of an ongoing series of insights from a financial diaries study undertaken with refugees in Uganda, focused on their ability to cope with risks. The respondents are drawn from customers served by three financial service providers: Equity Bank Uganda, VisionFund Uganda, and the Rural Finance Initiative.

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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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                      Rebuilding livelihoods in displacement Endline Report – March 2022

                      Rebuilding livelihoods in displacement Endline Report – March 2022

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                        Little has been known about the financial strategies employed by refugees over time to build their livelihoods and manage their finances. This report provides an in-depth analysis of a baseline survey undertaken in January 2020 and an endline in November 2021. The sample included refugees and their host communities in the settlements of Nakivale, Bidi Bidi, Palorinya and in the capital Kampala. An endline study was conducted to understand the evolved financial behavior of refugees, get feedback on financial products offered by the implementing partners and assess how new financial products were used by the refugees. The COVID-19 pandemic occurred during the study period and offered the opportunity to track how households coped with the situation.

                        The Financial Inclusion for Refugees (FI4R) project was launched in 2019 by FSD Uganda and FSD Africa to support financial service providers (FSPs) to offer financial services to refugees and host communities. The project is supporting three financial service providers (FSPs) Equity Bank Uganda Limited (EBUL), Vision Fund Uganda (VFU) and Rural Finance Initiative (RUFI) to offer financial services to refugees and host communities.

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                        Financial Inclusion for Refugees Case Study in Uganda

                        Financial Inclusion for Refugees Case Study in Uganda

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                          To credit Henry J. Leir Institute – The Fletcher School of Law and Diplomacy

                          During a year that most of the world has spent locked indoors, we should remember that 1% of the world’s population has been forced to flee their homes due to conflict or persecution. This is roughly 79.5 million people. 26 million are refugees, and almost half are under the age of eighteen. Nearly three-quarters of displaced persons are hosted by neighboring countries, which often are in need of help themselves.

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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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