What Uganda should do to improve financial inclusion: Maria Kiwanuka
Summary of Minister of Finance Maria
Kiwanuka at the Launch of FinScope III Survey Report held
on 28/11/ 2013 at Kampala Serena Hotel- Victoria Hall
The importance of this survey results is underscored by the
high levels of financial exclusion prevailing in the country. In Uganda,
Financial Inclusion remains a challenge in spite of the many gains and
successes we have achieved in the financial sector in the last 20 years.
Financial services such as savings products, credit and
loans, payment and money transfer services, provide the population with greater
capacity to stabilize and increase their incomes. In addition financial
services help individuals and communities to build assets and cope with shocks.
Financial products have proven to be great tools that mitigate the effects of
low, irregular and unreliable incomes which keep many people below the poverty
line.
According to the survey findings, only 20 percent of adults
in Uganda had access to a formal bank account and only 12 percent borrowed
formally in the last 12 months. Only 2% of adults had any form of formal
insurance.
The small numbers suggest a critical need for a further push
to the financial inclusion agenda to ensure that the people at the bottom of
the pyramid join the formal financial system, reap benefits and improve their
financial well-being. Financial inclusion is a central theme for all of us
because most of those in poverty do not have access to financial services as
already mentioned.
Poverty alleviation is a top priority for the Ugandan
Government and financial inclusion is an essential component of the country’s
poverty alleviation strategy. It is our hope that greater financial inclusion
will ultimately reduce poverty and inequality.
Surveys of this nature are very instrumental in providing
data that informs the government and other stakeholders on the level of access
and use of different products/ services across the different population
segments.
Ladies and gentlemen, allow me to delve deeper into the
pertinent issues which must be taken into account by all financial service
providers in order to foster financial inclusion.
Assuring savers of the safety of their member-savings
The lack of such assurance can be a great source of
suffering to savers whenever there is collapse of any service provider. This is
mostly pronounced among the many semi-formal and informal service providers
like SACCOs and Community Groups. Prudential regulation and other safety nets
for service providers should always be in place to reduce on this risk. In that
way, the country will be able to attract more savers into formal institutions.
Reducing lending risk and risk perceptions inherent in lending to key
productive sectors particularly Agriculture and SMEs.
While agriculture forms the backbone of the Ugandan economy
and provides employment to the majority of Ugandans, there is little evidence
that credit is churned into this sector in adequate proportions. Exclusion of
agriculture in lending is indeed exclusion of many people especially in Uganda.
It is therefore crucial that service providers should design
financial products suited for the agricultural sector, i.e. reasonable priced
credit facilities and agriculture insurance. Innovation allows financial products
and services to be customized to those who need it and it is crucial for
creating a diversity of solutions to financial inclusion.
Expanding outreach through technological advancement
The cost of locating a financial institution branch in a
rural set up where the road network is poor, electricity is non-existent, and
the population is so dispersed is enormous. It is also expensive for savers who
travel long distances to go and deposit small savings in their accounts. The
cost of credit administration and borrowing becomes very dire in such
situations.
It is therefore important to explore the use of agents and
the new technology such as mobile phone banking and points of sale as tools for
financial inclusion. Harnessing the advantages that new technology offers may
reduce the cost of opening outlets especially in hard-to-bank areas that may
initially not be profitable for financial service providers. Technology will
continue to offer low-cost solutions and opportunities that were never thought
about in the past. Service providers need to harness these opportunities.
Promoting alternative banking methodologies
Methodologies such as group lending in microfinance and
Islamic Banking & Finance which use collateral substitutes and other
risk-sharing mechanisms that are not used by conventional bankers provide
viable alternatives that should be critically assessed. This opportunity should
be supported by a flexible (different laws and regulations for different sectors)
and strong regulatory and supervisory framework that guarantees safety and
soundness of institutions. Innovative financial inclusion works better when a
strong legitimate framework balances International Standards and national
conditions.
Financial literacy and the improved financial capability within the
majority of the population
One of the issues limiting financial inclusion is paucity of
information provided to clients and the lack of a good understanding or
interpretation of that information. We need a national framework to address
financial literacy and financial consumer protection. This framework should
assign roles to different stakeholders within the financial sector plus
providing for coordination among financial service regulators.
We should design and enhance twinning and financing
arrangements with the Ministry of Education and Sports, the National Curriculum
Development Centre and financial service providers to roll out a Financial
Literacy and Financial Consumer Protection program to schools, colleges and
universities.
With these remarks I once again thank EPRC for organizing
this event.
Maria Kiwanuka, Minister of Finance-Uganda
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