The Regulatory Tweaks That Will Spring Refugees in Uganda To Economic Inclusion
Uganda is home to 1.2 million refugees, with more than 800,000 refugees entering the country since July 2016. Most refugees this year come from South Sudan and others have come from the neighbouring conflict-affected countries including the Democratic Republic of Congo, Rwanda, Burundi and Somalia.
While the immediate concern is with feeding and caring for the basic needs of the South Sudanese refugees, and the UN Refugee Agency is holding a meeting this month on that issue, long-term, the first step for formalising all refugees into sustainable economic inclusion is through financial systems access. Indeed, in countries with high refugee populations like Uganda, it is critical for the private sector to view them as consumers, money makers and tax payers.
Uganda has opened her doors, granted freedom of movement and employment, provided land to cultivate and ensured access to basic services through the Ugandan Refugees Act. Through the Office of the Prime Minister (OPM), the country has also facilitated humanitarian support through cash and non-cash transfers. The private sector players supporting these cash transfers, including banks and mobile network operators, have extended their existing services like mobile money and prepaid cards to serve the refugee communities. However, they face many capital expenditure (cost of setting up network towers, branches, mobile vans) and operational (agent liquidity, account opening requirements and procedures) challenges that hinder the scaling their efforts to reach more people.
This results in refugees shunning the adoption of these services, opting for the non-formal physical cash option. As confirmed by dozens of studies, they often withdraw all the cash availed, thus not building a savings and investment culture. Hence, the refugees neither improve their vulnerability to financial shocks nor their financial capacity once resettled to their countries origin.
To turn this situation around, there is an urgent need to re-think the financial services legal framework. These are three suggestions that the financial services policy makers in Uganda should adopt to support the development of partnerships between humanitarian and private sector players to drive financial inclusion:
• Accelerate the issuance of the agency banking regulations. Early in 2016, the Financial Institutions (Amendment) Act was passed. This Act allowed for Commercial Banks and Credit Institutions to appoint other businesses (like supermarket and petrol station outlets) as agents to provide basic services on their behalf, thus driving down the cost of and reliance on bank branches and ATMs. The financial institutions, many of which have been preparing to adopt this model to boost their service distribution, are however still waiting for the issuance of the guiding regulations that allow them to do so. The Uganda Bankers Association, working with all its member banks and with support from Financial Sector Deepening Uganda (FSDU), Consultative Group to Assist for the Poor (CGAP) and abiTrust, has also proposed to roll out a shared bank agent banking platform – a first in the world. With agency banking models now accepted in Kenya, Tanzania, Rwanda and others, Uganda is lagging the region in bank account access (at 20% versus 40% in Kenya). The issuance of these guidelines will allow banks to reach underserved communities – including refugees – in a much more efficient manner.
• Review the Anti-Money Laundering (AML) regulations to allow for tiered KYC. Understandably, one of the key barriers to serving refugees is ensuring that the person standing in front of you is who he/she says he/she is. This is further exacerbated by the ongoing challenges the world is facing in fighting terrorism, and the fact that refugees may face political persecution and are as such reluctant to divulge the personal information necessary to access any services. Development agencies and Fintechs have been advocating the adoption of new approaches to Know Your Customer (KYC) – the process of registering and confirming an account holder- and promoting a tiered approach. This means that the requirements to open a bank or mobile money account will be lowered (i.e. tiered) for selected segments of the community, as such reducing reliance on physical addresses, restricted types of identification, introductory letters from community leaders (which refugees may not have) to consider finger print and facial recognition technologies.
• Incentivize the private sector to reduce the cost of remittances. In the report, Reducing Costs and Scaling Up UK to Africa Remittances Through Technology the average cost of the over GBP 180 million is sent to Uganda each year just from the UK was 9%. The high cost of these money transfer services, often borne by the most vulnerable – refugees included – should be lowered to better meet immediate needs and secure a better future through savings and investments. By doing so, Uganda will move a step further to the achievement of the Sustainable Development Goals (SDGs). Further, it should increase inward remittances, which will boost research into and the development of human-cantered innovative products by formal financial services providers like low-cost savings, microcredit and insurance.
It is evident that both private (banks, telecommunications providers, fintechs) and public (CentralBank, Competition Commissions, Communications Commissions) institutions must work with the existing aid agencies and development partners to formulate joint plans and strategies to address the existing challenges and provide long-lasting solutions. The right adjustments to the existing policies will drive private sector investment to achieve the congruent objective of financial inclusion and refugee economic inclusion.