Monday, August 15, 2016


When I left university getting a bank account on one of the high street banks was out of the question as they had prohibitive requirements. To keep an account one had to maintain a minimum balance of sh100,000 was one of those unfriendly requirements.

In addition banks remained open for a four hour window, between 9 am and 1 pm, all the branches were on Kampala road and there were no ATM machines. Then Greenland Bank came along scrapped the minimum balance option, operated until 7 pm in the night and opened on weekends.

In response other banks have become more flexible. Branches were opened in unthinkable streets and towns. Opening hours have been extended to all day. And believe it or not now every bank has a product that does not call for minimum balances.

A lot of these changes have come from increased competition but advances in technology have played a crucial role.

This week mobile phone company MTN and Commercial Bank of Africa (CBA) announced the introduction of a mobile phone banking service MoKash, the precussor of a revolution in financial services in the country.

With the service mobile money members can now get interest on the monies they hold on their accounts and in addition can get loans of up one million shillings depending on how much their saved and how much they utilise the MTN services.

Kenya and Tanzania have already been ahead of us on this development and progress there is an indication of what we can expect.

In Kenya the Mshwari service which was launched four years ago now boasts of more than 15 million clients, with an additional 12,000 signing on per day. The total deposits on the service amounted to $81m (sh250b) as of the end of March.

"In Uganda already 83,000 accounts have been opened this week, it is projected that sh21b in deposits will have been received by this time next year and that  four in every ten mobile money account users will be signed on during the same time...

Essentially that in three years there will be as many people in the service as the five million bank account holders there are today.

For the general economy and even the improvements in the welfare of individual households this number or development will be very significant.

The major challenge for development in Uganda is that too little of the money in circulation is in the formal banking system. This is a problem because money in your pocket is actually reducing in value with time, but beyond that it cannot be used by people with a genuine need for it.

In Uganda under 30 percent of money in circulation is in the formal financial sector whereas in more developed economies it is the exact opposite. One of the biggest benefits of this is the low lending rates they enjoy and the myriad of products the banks have because banks make money by lending. 

Going by the law of supply and demand the money they have seating in their vaults the cheaper it is to lend out.

With the use of technology we are now begin to rope in this little monies that have been going unutilised. According to official figures about sh30trillion was transacted across all mobile money platforms in Uganda last year. A figure which jumped from sh18trillion in the previous year.

This money was not earning interest for its owners nor could they borrow against it.

"With this single stroke access to financial services – savings, loans, insurance and many others will be only a phone click away from the most down trodden of our numbers – the new service allows for deposits of as little as sh50 and loans of sh3000...

With time the service will not be the sole preserve of MTN and CBA bank, which is a good thing as competition can only improve the sector, the final beneficiary will be the masses.

For the general economy these huge untapped resources will inevitably have a seismic effect in the industry and for the individuals it will open a whole new world of possibilities.


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