Tuesday, June 26, 2018


Last week a report FinScope Uganda 2018 was released which detailed how accessible financial services are to us and it also showed why wealth seems to evade us at a persona level.

Financial inclusion is an important measure for economies.

On a personal level the more people have access and use financial services the more economic activities they can engage in which may have beneficial consequences on their standard of living and the viability of their businesses.

"On a macro level greater financial inclusion is correlated to the ability of economies to mobilise domestic resources which has consequences on lending rates and the ability to invest in long term development projects...

The recent study, the fourth in a series that dates back 2006, showed that financial inclusion in Uganda while it held steady at 78 percent from the 2013 one, showed that more people are shifting towards using formal institutions for their financial needs.

In 2013, 26 percent of Ugandans relied on informal institutions for their financial requirements a figure that dropped to 20 percent in FinScope Uganda 2018.

This trend is important. The formal institutions, in this study banks, Micro-finance institutions, savings cooperatives (SACCOS), mobile money operators and insurance, aggregate these resources and lend them out to the productive sectors of the economy. This is as opposed to the informal avenues such as keeping money at home or in savings groups, which have limited ripple effect.

The more money in the economy that finds its way into the formal financial sector the better, as my money when I am not using it can be lent to economic actors in need who would use it to support or expand businesses.

A strong trend has shown up in the last two reports and that is the use of mobile money platforms to drive financial inclusion.

Mobile money services were launched in 2009. In 2017 the report says sh54trillion exchanged hands over these platforms -- easily half the GDP of Uganda, up from sh44trillioni n 2016.

Of the formal means of access to financial services mobile money channels long overtook banks as the preferred choice of most Ugandans. This should not come as a surprise as there are an estimated 22 million mobile money subscribers as compared to five million accounts in the whole banking industry.

With the introduction of mobile money services we do not only now have means to transfer money but now one can even pay for goods and services, borrow money and even take out insurance.

"The growth of mobile money has also dispelled the myth that Ugandans cannot save with median amounts reported in the survey at sh30,000 saved on people’s phones. Our “poor” saving culture is clearly a function of access to saving mechanisms that we can trust....

But financial inclusion in and of itself will not necessarily improve people’s wellbeing.

The study revealed several things that perpetuate our hand to mouth existence,  that need to be broken for this new access to be more beneficial.

One, that less than half or 47 percent of Ugandans keep track of the money they receive and spend. Secondly that Ugandan adults are unlikely to seek financial advice and those who do about 56 percent turn to family and friends.

And related to that last one 39 percent of adults do not have a plan to acquire the assets they aspire to.
While one of the first things to do to pull people out of poverty is help them earn or raise their incomes, for people to banish poverty people they have to keep more and more of what they earn. 

The latter does not necessarily follow from the former.

The challenge is that our expenses tend to expand to consume any new income we may make.

So beyond financial inclusion, and the report points this out, there is an urgent need for financial literacy across the population.

How does one behave around their income? How does one leverage their current income to ensure financial freedom in the future or at least financial independence? What are the available investment opportunities? How do you run a sustainable business?

"Financial literacy will also help with the knowledge that all the resources we need to improve our standard of living are within easy reach of ourselves...

It’s a cliché, but the truth is it’s a mindset thing. What’s the difference between two people of equal income one of whom saves 10 percent of his income religiously and the other who doesn’t? Or worse still two people of different income with the lower earner having more assets to his name than the high income earner?

Raising incomes is desirable, increasing access to financial services as a worthy goal but to banish poverty we need to commit to universal financial literacy and narrow income disparities.

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