Uganda’s Contradictory, Inconsistent Policies Hurting Financial Inclusion Efforts

By Nathan Were

In 2017, Uganda launched its 5 year financial inclusion strategy that seeks to reduce financial exclusion to 5% by 2022. The strategy recognises that access to formal financial services by the population can contribute to inclusive economic growth. It further seeks to remove barriers to financial exclusion with more focus on excluded segments that are mostly in rural areas and comprise 71.5% of the population. The strategy also recognises the advances made on financial inclusion between 2009 and 2013 with much of these gains driven by mobile financial services.  Infact, according to the most recent report by intermedia – the financial inclusion tracker 2017 – 43% of Ugandan adults have a registered mobile money account compared to only 11% who own a full service bank account.  The report further shows that one-half of adults (46%) who were financially included in 2017, 43% are through mobile money, followed by banks (11%) and non-bank financial institutions (NBFIs) (7%) and between 2016 and 2017, Mobile money account owners grew by 5% compared with 3% for non-bank financial intermediaries, growth is bank accounts was negligible.

With this background, it is clear that mobile financial services hold the key to driving the country’s financial inclusion agenda and reduce exclusion to the set target of 5% by 2022. However, the recent imposition of the 1% tax on mobile money transactions will dampen these efforts.

Several studies by organizations supporting digitization of payments in rural areas in Uganda show that the poor are price sensitize and price remains the biggest barrier to driving uptake and use of mobile money among smallholder families. With a poorly developed eco-system that makes it difficult to make person to business payments, the only option most rural folks have is to cashout. With cashout fees sometimes in excess of 10% of transacted amount, most farmers have opted to receive their payments in cash. With this new tax, we expect that usage of mobile money will significantly reduce for the rural as well as urban communities that live on less than $2 a day.

There’s value in digitization of payments and a number of initiatives that are supporting digitization in agriculture, worker’s salaries or even loan repayments are riding off the mobile money platform. A number of off-takers that previously struggled to pay farmers using cash have since shifted to mobile money saving significant costs and time associated with the logistics of making cash payments. We shall most likely see these off-takers returning to cash as farmers will most likely reject mobile money payments given these exorbitant fees.

Donor have been pushing a lot of resources to support efforts to drive digitization of person to person, person to business, person to government and government to person payments owing to the benefits that come with digitised payments. In Liberia for-example, when government took a decision to digitize salary payment for teachers, there was 94% reduction in missed class time as teachers now received their salaries on the mobile phone as opposed to taking a bus trip to the nearest bank to draw cash; time to collect salary also reduced from 2 days to 25 minutes and there was greater transparency and accountability weeding out ghost teachers on the pay roll. Given that most of these initiatives ride on mobile money, as a country we stand to lose greatly not only the direct benefits that mobile money brings but also donors starting to look elsewhere especially towards countries with more progressive regulatory and tax regimes.

If the government is true to its goal of driving financial inclusion to 5% by 2022, then this 1% tax on mobile should be withdrawn. It makes government contradictory and inconsistent in its efforts to drive inclusion of the poor.

Mr. Were works to advance the financial inclusion agenda in Africa.



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