47 percent Ugandans do not use formal banking services
Uganda must review the driver of growth by improving financial literacy if the country will achieve financial inclusion of every Ugandan says Minister of Finance Maria Kiwanuka.
Ms Kiwanuka, while launching the FinScope III Survey Report, said that it is important for people to learn how to invest before they can create savings to put in different financial institutions like banks, insurance, SACCOS and other informal financial services.
She was speaking at the launch of the third FinScope Survey report at the Kampala Serena hotel on Thursday (November 28th 2013). Most African countries have implemented the FinScope surveys and they are being implemented with an aim of determining the levels of access to and use of financial products and services by adult population of 16 years and above.
The findings of the FinScope III survey report reveal that in rural areas, people use more informal financial service providers like village saving schemes and mobile money (35%) than the formal services like banks (32%).
Lawrence Bategeka a senior research fellow at Economic Policy Research Centre (EPRC) says as Uganda strives to improve financial services and extend them to rural areas, credit cannot be extended to people who do not have a framework of production.
The report notes that 47% of people said they did not use formal banking services because they did not have income to save. Savings therefore with formal banks remained low at 19%.
Bategeka says that for the country to achieve economic gains, credit should be extended to framework of production because if money is not well streamlined, credit will be put into consumption and not investment.
Government through their micro finance branch of ministry of finance is encouraging people across the country to form SACCOS and savings groups for women, youth and farmers. Government then extends credit to these groups with a hope that the money will be invested.
“Credit should be given to farmers for agricultural inputs. If you can demonstrate that the credit will help them strengthen their productive capacity then financial literacy will develop,” Bategeka says. Adding that the government should be paying attention to financial services schemes linked to a clear well refined purpose and this is the demand side, income levels of the people and broadening inclusive growth”.
He says it is education and incomes that will improve access to financial services and improve financial inclusion for all.
“We are dealing with a chicken egg dilemma. Whether financial services follow development or the other way round, what should come first? Truth be told, finance follows development and that is why we are saying access is higher in urban areas and among the educated, males who have collateral and rich families. If we want access to increase we need to focus on development. If you ask citizens if they have access to insurance or banking services, they will tell you financial institutions are not relevant to their needs, they are going to say they have no income and their activities they engage in can hardly be financed by commercial banks,” Bategeka said.
Henry Mbaguta the commissioner for microfinance at the ministry of Finance Planning and Economic Development says government has been a key player in the concept of access to financial services. In the last 20 years, government has been a direct investor in increasing financial access while in the last ten years government has been implementing the rural financial services strategy. Emphasis was put on the rural areas because they were extremely underserviced.
“What we have observed is increased access to financial services. We can see that government has been strengthening the capacity of the service providers. It has been influential in providing affordable credit, which has been expensive for a long time. I remember we had interests rate from a certain institution in ranges of 600%. It is imperative for communities to be able to borrow and invest,” Mbaguta says.
He says government is working on the development of a legal framework for the sector and in six months the country will have an all embracing framework to bring all the players into a proper guideline.
Sande Protazio the assistant Director Market RDIRA says lack of knowledge is keeping people way from buying insurance. He says the issue of low penetration is attributed to the way people perceive risk.
“It is something bigger than awareness that attributes to low uptake of insurance. We are trying to examine the best strategy to change perception towards insurance. Changing will take time but we are very aware and we are engaging government and the public,” Sande says.
“This is not to say there is nothing we are doing to put it in order. We have examined the value of insurance to the clients. People think insurance companies do not pay, that insurance is expensive. Those who say it is expensive have never got insurance. We are investing in dialogue and public awareness. We have made efforts to use the banks to reach a wider audience,” he said.
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