Report on Banking and the Status of Financial Inclusion in Uganda

a Banking and Financial Inclusion in Uganda

Financial Sector Deepening

Report on banking and the status of ﬁnancial inclusion in Uganda: Insights from FinScope 2018 Survey

Financial Sector Deepening Uganda (FSD Uganda) Plot 7A, John Babiha Avenue, Kololo, Kampala P.O. Box 608 Kampala, Uganda Tel: +256 414 231260 Email: [email protected] b Thematic Report i Banking and Financial Inclusion in Uganda

TABLE OF CONTENTS

ACKNOWLEDGEMENTS iii ACRONYMS iv DEFINITIONS v INTRODUCTION 1 FINSCOPE SURVEYS 1 FINSCOPE UGANDA 2018 OBJECTIVES 2 FINSCOPE UGANDA 2018 IMPLEMENTATION ARRANGEMENTS 2 FINSCOPE UGANDA 2018 SAMPLING FACTS AND STATISTICS 3 FINANCIAL SECTOR TARGET MARKET 4 FINSCOPE UGANDA 2018 FINDINGS 6 Uganda’s banking sector and financial inclusion 6 Profile of banked adults 7 Uptake of banking services 12 Drivers of uptake 12 Account ownership 12 Frequency and active usage 13 Savings behaviour of banked adults 18 Borrowing behaviour of banked adults 21 Digital behaviour of banked adults 24 Barriers to uptake of banking services 25 Opportunities for banking 26 Indirectly banked 26 Unbanked population 27 CONCLUSIONS AND RECOMMENDATIONS 35

Cover Photos: Front: A client receives services from a bank counter. Photo: Bank of Uganda Back: Licensed Commercial Banking Institutions and MDIs in Uganda. Banking and Financial inclusion in Uganda insights from Finscope 2018 survey Banking is defined to include commercial banks and micro finance deposit taking institutions (MDIs)

Adults who don’t have accounts and use banking services Adults who have accounts and use banking services 2% 9%

In 2018, 11% of adults used banking services; 9% had accounts, while 2% did not have accounts. Using banking services without having accounts include over the counter (OTC) transactions such as paying school fees and bills and using an account of a relative or friend.

Drivers of uptake Channels used to access bank accounts 37% To save Receiving salary/wages 73% 26% To pay school fees 15% To keep money safe 41% 11% To get credit/loan 12% 6% To make payments/receive money 5% 2% 4%

Bank branch ATM Mobile phone Internet Agent 81% Frequency of usage of accounts Types of bank services used

41% Saving account ATM/Debit card 19% Current account 8% 51% 40% 8% 49% 42% 7% 54% 38% % of all banked adults % of banked males % of banked females Loan account

Fixed deposit account 9% Once or more a week but not daily Credit card Once or more a month but not daily 2% Less than once a mouth 2% 5% 48% 47% 10% 55% 34% % of rural based banked adults % of urban based banked adults Depth of usage of bank services Saving services Payment services Credit services iii Banking and Financial Inclusion in Uganda

ACKNOWLEDGEMENTS

This research was made possible by funding from the Department for International Development (DFID). It was carried out by Financial Sector Deepening Uganda (FSDU), in partnership with the FinScope Secretariat at the Bank of Uganda (BoU), the Uganda Bureau of Statistics (UBOS) and the FinScope steering committee (see details below). Data collection was carried out by Ipsos Uganda. Yakini Development Consulting provided technical advice, undertook data analysis and drafted this report. FinScope Steering Committee members:

Financial Sector Deepening iv Thematic Report

ACRONYMS

ATM Automated teller machine BoU Bank of Uganda EA Enumeration Area FSDU Financial Sector Deepening Uganda FSP Financial Service Provider KYC Know Your Customer MDI Deposit-taking microfinance institution MFI Microfinance institution OTC Over the Counter PPI Progress out of Poverty Index ROSCA Rotating Savings and Credit Association SACCO Savings and Credit Cooperative Organisations UBoS Uganda Bureau of Statistics VSLA Village Savings and Loan Association

A customer accesses ATM services. Photo: BoU. Targeted EAs: 320 EAs v Achieved EAs: 316 EAs Banking and Financial Inclusion in Uganda Targeted sample: 3,200 respondents Achieved sample: 3,002 respondents (94% response rate)

DEFINITIONS After weighting, the FinScope data represents an adult population of 18.6 million; the FinScope 2013 survey data represented an adult popu- Active usage – refers to having used a financial service in the 30- lation of 16.6 million. day period prior to the FinScope survey (with or without ownership). Adult population – individuals aged 16 years or older. Banked population – adults who access and use the services of commercial banks and MDIs. Credit institutions were omitted. The banked proportion of the population was recalculated for 2013 to ensure accurate comparison with this 2018 figures. Credit service/loan – money is provided upfront by a lender and repayment is expected to be carried out by the borrower in the future and according to agreed-upon repayment terms. Financially excluded – Persons who do not have access to or use financial services (either formal or informal). Financially included – those who do have access to or use financial services (either formal, informal or both). Formal financially included population – Persons who have access to or use financial services provided by a formal financial service provider. Formal financial service providers – financial service providers who are regulated or supervised, e.g. commercial banks, microfinance institutions (including deposit-taking institutions), Savings And Credit Cooperative Organisations (SACCOs), credit institutions, cooperatives, mobile money service providers, insurance service providers, pension funds, capital markets, forex bureaus and money transfer institutions (such as Western Union and MoneyGram). Formal financial services – financial services provided by formal financial service providers. Informal financially included population – those who use financial services provided by an informal financial service provider. Informal financial service providers – financial service providers who are not regulated or supervised, e.g. savings groups, Village Savings and Loan Associations (VSLAs), Rotating Savings and Credit Associations (ROSCAs) and community-based money lenders and burial societies. Family and friends are not regarded as informal service providers. Informal financial services – financial services provided by an institution or individual that is not regulated or supervised. vi Thematic Report

Insurance service – provides the user with a means to put aside money in order to receive financial protection or reimbursement when losses occur. Payment service – provides the user with a means to move money from one wallet to another (this can be from person to person, person to business, business to person, person to government, government to person, business to government or government to business). Saving service – provides the user with a means to put aside money for safe keeping. Uptake – refers to having access to or using a financial service (e.g. opening an account with a service provider or using someone else’s account). Usage – refers to having used a financial service in the 12-month period prior to the FinScope survey (with or without ownership).

Receiving cash from a customer. Photo: Bank of Uganda 1 Banking and Financial Inclusion in Uganda

INTRODUCTION

To develop effective interventions – financial or otherwise – aimed at developing any sector, it is important to have a comprehensive understanding of the sector. In particular, it is important to understand the specific challenges faced by that sector and the capacity that exists to deal with them. The objective of this report is to give an overview of the Ugandan banking sector and the potential opportunities that exist to increase the banked population. The information generated by the FinScope Uganda survey, conducted in 2018, provides the basis for this report’s analysis. Information presented in all tables and figures are obtained from analysis of FinScope 2018 dataset. FINSCOPE SURVEYS

The FinScope survey was developed by FinMark Trust. It was designed to determine how people manage their money and the extent to which they use financial services to do so, and to monitor changes in levels of financial inclusion over time. To facilitate higher levels of financial inclusion, FinScope also provides insights into the drivers of uptake and usage of financial services among different segments of the adult population, as well as insights into factors limiting uptake and usage within different population segments. FinScope is of value to both policymakers who wish to promote financial inclusion and improve the functioning of financial markets, and to private service providers who wish to develop strategies and design financial products that are relevant to customers. The first FinScope survey was carried out in Uganda in 2006. The second survey, which allowed an assessment of changes in the market, was conducted in 2009, and the third took place in 2013. FinScope survey findings are crucial for stakeholders in Uganda’s financial sector, particularly because they establish credible benchmarks of financial inclusion and insights into obstacles to growth. FinScope also informs both policy reform and innovation in service development and delivery, thereby helping to increase levels of financial inclusion. 2 Thematic Report

FINSCOPE UGANDA 2018 OBJECTIVES

The 2018 survey had 3 main objectives: 1. To track overall trends in financial inclusion, in order to provide information on how the landscape of inclusion has changed since 2007. This included benchmarking these trends against peer countries within the region. 2. To provide insights that could be utilised both at policy and market levels to further deepen financial inclusion. 3. To illustrate the financial service needs of the adult population of Uganda. FINSCOPE UGANDA 2018 IMPLEMENTATION ARRANGEMENTS

The 2018 FinScope survey was commissioned by FSD Uganda. After an open tender, Ipsos Uganda was selected to conduct fieldwork and data collection. Yakini Development Consulting was selected to provide technical assistance during survey implementation, to analyse data and to write FinScope reports. A top-line findings report and four thematic reports have been written (on the themes of insurance, banking, gender and young adults, and informal inclusion). The Uganda Bureau of Statistics (UBoS) drew the sample, as well as validated and weighted the data from this study, making it representative of the Ugandan adult population of 18.6 million.

Post Bank unveils prepaid card to ease field payments. Photo: FSDU 3 Banking and Financial Inclusion in Uganda

FINSCOPE UGANDA 2018 SAMPLING FACTS AND STATISTICS

A three-stage stratified sampling approach was used to achieve a representative sample of the adult population: •• The first stage of sampling looked at geographic representation. A sample of 320 enumeration areas (EAs) Targeted EAs: 320 were selected using a ‘probability EAs proportional to size’ (PPS) approach ensuring national, regional Achieved EAs: 316 and urban-rural representativeness. EA EAs sampling was conducted by UBoS. Targeted sample: •• During the second stage of sampling, 3,200 respondents 10 households were selected at random from a comprehensive list Achieved sample: of households in each sampled EA. 3,002 respondents The lists of households for each of the (94% response rate) sampled EAs were compiled by Ipsos enumerators prior to conducting After weighting, the FinScope data fieldwork. During this listing process, represents an adult enumerators moved through each EA population of 18.6 compiling a list of every structure and million. household. •• During the third stage of sampling, one adult from each of the 10 households was selected at random to be interviewed. The sampling approach ensured that results from the survey can be disaggregated by region and location setting (i.e. rural or urban), as well as by demographic attributes such as sex, socio-economic classification and main income-generating activity. 4 Thematic Report

FINANCIAL SECTOR TARGET MARKET According to the Uganda Bureau of Statistics’ 2018 mid-year estimates, the size of the Uganda population is 38.7 million. The target market for the financial sector (including the banking sector) is theadult population of Uganda. This includes those over 16 years of age, who are therefore eligible to work and generate income, and as such are potential consumers of financial services. The adult population of Uganda is 18.6 million. Table 1 gives a summary of its size and demographic distribution. Table 1: Uganda adult population: 2018

Characteristics Number of adults % of adults Total population 18,572,641 100% Geographical setting Rural 14,138,155 76% Urban 4,434,485 24% Gender Male 8,588,679 46% Female 9,983,962 54% Age Category 16 to 25 years 5,956,209 32% 26 to 35 years 4,919,494 26% 36 to 45 years 3,090,047 17% 46 to 55 years 2,125,581 11% 55 to 65 years 1,599,173 9% Older than 65 years 882,137 5% Education level Never went to school 2,694,672 15% Primary levels 10,293,617 55% Secondary levels 4,502,427 24% Specialized training 854,751 5% Tertiary 199,133 1% Main source of income Farmers/fishers 8,822,636 48% Dependents 3,633,421 20% Casual labourers 2,701,769 15% Business owners: traders 1,133,906 6% 5 Banking and Financial Inclusion in Uganda

Characteristics Number of adults % of adults Formal sector employed 617,084 3% Business owners: service 453,214 2% providers Informal sector employed 363,456 2% Other 847,154 5%

NOTE: ‘Casual labourers’ is a common term used to describe workers performing a variety of services, on a temporary or part-time basis. Casual labourers usually get paid on completion of their work, with wage levels varying from job to job. Adults from low-income households often perform casual labour to cope with unexpected expenses. Casual labour is different from being employed in the informal sector (e.g. working for the owner of an unregistered business or a farmer) in the sense that those employed in the informal sector receive wages (usually a fixed amount) on a regular basis.

Table 1, above, shows that Uganda’s adult population is relatively young (58% are under 36), a slight majority (54%) are female, and around three-quarters live in rural areas. Just over half of the adult population is educated up to primary school level. Most rely on irregular sources of income, and 20% depend on others to give them money or to cover their expenses.

A customer accessing Agent banking services. Photo: FSDU 6 Thematic Report

FINSCOPE UGANDA 2018 FINDINGS

UGANDA’S BANKING SECTOR AND FINANCIAL INCLUSION In 2018, 11% of adults used services from banks; 9% and 2% of them had accounts and did not have accounts respectively.

Ownership is defined to mean those who currently have an account and those who use such accounts. It includes those who do not have an account but use the services. While in the previous FinScope surveys, banking included commercial banks, Credit Institutions (CIs) and Microfinance Deposit-taking Institutions (MDIs), in 2018, only banks and MDIs were considered hence the need to revise 2013 figures for banking to exclude CIs. The revision was made to make findings from FinScope Uganda comparable across 2013 and 2018 and also across other countries where FinScope is conducted. In addition, CIs were excluded because they do not provide a full range of financial services which the financially excluded and the underserved would need to enable them pay, save, borrow and acquire assets.1 Figure 1 below shows that in 2013, 13%, of adults used services from banks. Of those who used banking services, 9% had accounts, while 4% did not have accounts. In 2018, 11% of adults used services from banks. Of those who used banking services, 9% had accounts, while 2% did not have accounts. The 2% drop in those who used banking services between 2013 and 2018 was caused by those adults who use banking services without owning an accounts. Using banking services without owning an account include over the counter transactions (OTC) such as paying school fees and bills and using an account of a relative or friend. Figure 1: 2013 and 2018 ownership and usage of banking services

2013 ownership and usage 2018 ownership and usage

Adults who use only 4% Adults who use only 2%

Adults who have accounts 9% Adults who have accounts 9%

0% 2% 4% 6% 8% 10% 0% 2% 4% 6% 8% 10%

1 http://www3.weforum.org/docs/WEF White Paper Advancing Financial Inclusion Metrics.pdf 7 Banking and Financial Inclusion in Uganda

A comparison with other countries in which FinScope surveys have been conducted shows that, when it comes to the proportion of adults who use banking services, Uganda is lagging behind (see Figure 2 below). The biggest challenge for Uganda lies in accessing its largely rural population (76% of adults live in rural areas, compared to, for example, 66% in Tanzania). Given the high cost of providing financial services to rural areas, Financial Service Providers (FSPs) (banks included) lack an incentive to do so. This means that only 7% of rural Ugandans are ‘banked’, compared to 24% of those residing in urban areas. To bring about growth in the banking sector, Uganda will have to find innovative ways of reaching potential consumers in the countryside. Agent banking, which was implemented in Tanzania in 2013 and introduced recently in Uganda, and mobile banking are examples of such innovations. These figures indicate that there is a good opportunity to grow banking through mobile services.

Figure 2: Country comparisonFigure 2: Country comparison

SA '17 77% Kenya 16 42% Rwanda '16 26% Tanzania '17 13% Uganda 18 11%

% adults who have/use bank services

Profile of banked adults 6.2 Profile of banked adults

KampalaTable 2 gives hasa regional the overview of the banked population highest percentage of Uganda. ofOnce more, it is clear that those bankedin rural regions (such as Karamoja, Kigezi and Bugisu) are less likely to banked than those in urban adults (42%), followed by Wakiso (20%),regions and(like Kampala and Wak Karamojaiso). has the least

Table 2 gives a regional overview of the banked population of Uganda. Once more, it is clear that those in rural regions (such as Karamoja, Kigezi and Bugisu) are less likely to be banked than those in urban regions (like Kampala and Wakiso).

8 Thematic Report

Table 2: Regional breakdown of the banked population

Region Districts included Number % of adults % of adults % of regional Median of adults in region in region contribution monthly banked banked unbanked of banked income in adults in region (UGX) Uganda

Kampala Kampala 394,255 42% 58% 19% 300,000 Wakiso Wakiso 115,477 20% 80% 6% 220,000 Bunyoro Bulisa, Hoima, 120,384 13% 87% 6% 220,000 Kagadi, Kakumiro, Kibaale, Kiryandongo, Masindi Ankole Buhweju, 286,640 15% 85% 14% 150,000 Bushenyi, Ibanda, Isingiro, Kiruhura, Mbarara, Mitooma, Ntungamo, Rubirizi, Sheema. Central2 Buikwe, 363,866 13% 87% 17% 166,667 Buvima, Kayunga, Kiboga, Kyankwanzi, Kyotera, Luwero, Mityana, Mubende, Mukono, Nakasongola, Nakaseke Acholi Agago, Amuru, 108,995 11% 89% 5% 110,000 Gulu, Kitgum, Lamwo, Nwoya, Omoro, Pader Lango Alebtong, 143,606 11% 90% 7% 88,000 Amolatar, Apac, Dokolo, Kole, Lira, Otuke, Oyam, Pakwach Central 1 Butambala, 95,816 9% 91% 5% 186,000 Gomba, Kalanga, Lwengo, Lyantonde, Masaka, Mpigi, Rakai, Ssembabule 9 Banking and Financial Inclusion in Uganda

Busoga Bugiri, 108,041 8% 92% 5% 110,000 Bjuyendi, Iganga, Jinja, Kaliro, Kamuli, Luuka, Mayuge, Namayingo, Namutumba Tooro Bundbugyo, 96,171 7% 93% 5% 110,000 Bunyangabu, Kabarole, Kamwenge, Kasese, Kyenjojo, Ntoroko Teso Amuria, 46,095 6% 94% 2% 101,000 Bukedia, Kaberamaido, Kumi, Ngora, Serere, Soroti West Nile Adjumani, 55,999 6% 94% 3% 110,000 Arua, Kaboko, Marachi, Moyo, Nebbi, Yumbe, Zomba Bukedi Budaks, Busia, 69,277 6% 94% 3% 66,000 Butaleja, Butebo, kibuku, Pallisa, Tororo Bugishu Bududa, 62,562 5% 95% 3% 166,667 Bukwo, Bulambuli, Kween, Manafwa, Mbale, Namisindwa, Sironko Kigezi Kabale, 22,768 4% 96% 1% 80,000 Kanugu, Kisoro, Rubanda, Rukungiri Karamoja Abim, Amudat, Note: The number of banked adults in the 140,000 Kaabong, Karamoja region is so small that no banked Moroto, respondents were identified during the Nakapiripirit, FinScope survey Napak UGANDA TOTAL 2,089,952 11% 89% 100% 150,000 10 Thematic Report

Figure 3: Geographic distribution of banked adults

Figures 3 to 7, below, illustrate the geographic and demographic distributions of banked adults across the whole of Uganda. Figure 3 shows that 52% of banked Ugandans live in urban areas. Figure 3: Geographic distribution of banked adults Figure 3: Geographic distribution of banked adults

Rural, 48% Urban, 52%

Banked Ugandans are slightly more likely to be male than female, as Figure 4 shows. When looking at

Bankedthe adult population as a whole, Ugandans are slightly13% of moreUgandan men are likely to be male banked compared than female,with as 10% of women. Figure 4 shows. When looking at the adult population as a whole, 54% of UgandanBanked Ugandans men areare slightly bankedmore likely to be male compared to 46%than female, as Figure 4 shows of women. . When looking at Figure 4: Gender distribution of banked adults the adult population as a whole, 13% of Ugandan men are banked compared with 10% of women. Figure 4: Gender distribution of banked adults

Figure 4: Gender distribution of banked adults

Female, 46%

Male, 54% Female, 46%

Male, 54%

Figure 5 shows that, of the categories used in the FinScope survey, banked Ugandans are most likely to be aged between 26 and 35 years. ThoseFigure 5 overshows 65 yearsthat, of the categories used in the FinScope are the least likely to be banked. survey, banked Ugandans are most likely to be aged between 26 and 35. Figure 5: Age distribution of banked adultsThose over 65 are the least likely to be banked. FigureFigure 5 5: Ageshows distribution that, of the categories used in the FinScope of banked adults survey, banked Ugandans are most likely to be aged between 26 and 35. Those over 65 are the least likely to be banked. 16 to 25 years 26% 26 to 35 Years 34% 36 to 45 years 17% 46 to 55 years 13% 55 to 65 years 6% Older than 65 years 3%

% banked adults

With regards to education, it is most common that banked Ugandans have achieved up to the secondary level. Nearly a quarter have obtained specialised training, compared with just 5% for the adult population as a whole.

Figure 6: Level of education of banked adults 14 14

Never went to school 4% Primary levels 27% Secondary levels 38% Specialized training 24% Tertiary 7%

% banked adults

Figure 7, below, shows that farming (33%) and formal sector employment (22%) are the most common sources of income among adults who have bank accounts. Interestingly, some 15% of adults who are banked are dependent on others for money.

Figure 7: Main sources of income of banked adults

Farmers/fishers 33% Dependents 15% Casual labourers 12% Business owners: traders 6% Formal sector employed 22% Business owners: service providers 3% Informal sector employed 2%

% adults of banked adults

The FinScope 2018 survey for Uganda included, for the first time, geospatial mapping of the locations of financial service access points within the enumerator areas that were sampled. This data indicates that there is a significant correlation between proximity to bank services and service uptake –

Figure 5: Age distribution of banked adults Figure 5: Age distribution of banked adults

16 to 25 years 26% 16 to 25 years 26 to 35 Years 26% 34% 26 to 35 Years 36 to 45 years 17% 34% 36 to 45 years 46 to 55 years 1317% % 46 to 55 years 55 to 65 years 6% 13% 55 to 65 years Older than 65 years 3%6% Older than 65 years 3% 11 % banked adults Banking% banked adults and Financial Inclusion in Uganda

With regards to education, it is most common that banked Ugandans have achieved up to the With regards to education, it is most common that banked Ugandans have achieved up to the secondary level. Nearly a quarter have obtained specialised training, compared with just 5% for the secondary level. Nearly a quarter have obtained specialised training, compared with just 5% for the With regardsadult population as a whole. to education, it is most common that banked Ugandans have achievedadult population as a whole. up to secondary level. Nearly a quarter have obtained specialised training. Figure 6: Level of education of banked adults Figure 6: Level of educationFigure 6: Level of education of banked adults of banked adults Never went to school 4% Never went to school 4% Primary levels 27% Primary levels 27% Secondary levels 38% Secondary levels 38% Specialized training 24% Specialized training 24% Tertiary 7% Tertiary 7%

% banked adults % banked adults

FigureFigure 7 7, below,, below shows, shows that that farming (33%) and formal sector employment (22%) farming (33%) and formal sector are the most common employmentFigure 7sources ,of income below (22%), shows areamong the that farming (33%) and formal sector employment (22%) adults who have bank accounts. most common sources ofInterestingly, income among some 15% of adults who are are the most common adultssourcesbanked are who have of income dependent on others for money. bankamong accounts. adults who have bank accounts. Interestingly, someInterestingly, 15% of adults some who 15% of adults who are are bankedbanked are aredependent on others for money. dependent on others for money.

Figure 7: Main Sources of incomeFigure 7: Main sources of income of banked adults of banked adults Figure 7: Main sources of income of banked adults

Farmers/fishers 33% Farmers/fishers 33% Dependents 15% Dependents 15% Casual labourers 12% Casual labourers 12% Business owners: traders 6% Business owners: traders 6% Formal sector employed 22% Formal sector employed 22% Business owners: service providers 3% Business owners: service providers 3% Informal sector employed 2% Informal sector employed 2%

% adults of banked adults % adults of banked adults The FinScope 2018 survey for Uganda included, for the first time, geospatialThe FinScope mapping 2018 survey of thefor Uganda locationsincluded, for the first time of financial service, geospatial mapping of the locations access points The FinScope 2018 survey for Uganda included, for the first time, geospatial mapping of the locations withinof financial service access points within the the enumerator areas that were sampled.enumerator areas This datathat were sampled. indicates This data indicates of financial service access points within the enumerator areas that were sampled. This data indicates that therethat there is a significant is a significant correlation correlation between between proximity proximity to bank to services bank and service uptake – that there is a significant correlation between proximity to bank services and service uptake – services and service uptake – especially in rural areas.2 In these areas, only 7% of adults who live in EAs without bank services are banked, 15 compared with 20% in EAs that do have bank services. 15

In urban areas, the proportion of adults who are banked also increases if banking services are offered within the EA in which they live. In this case, however, the increase is only 4% (from 24% to 28%). It therefore seems that, given most banking service providers are located in urban areas, urban-based adults are less concerned than those in rural areas about proximity to banking services.

2 Bank services that were mapped included bank branches, ATMS and bank agents. 12 Thematic Report especially in rural areas.7 In these areas, only 7% of adults who live in EAs without bank services are banked, compared with 20% in EAs that do have bank services.

UPTAKEIn urban areas, t OF BANKINGhe proportion SERVICES of adults who are banked also increases if banking services are offered within the EA in which they live. In this case, however, the increase is only 4% (from 24% to 28%). It Driverstherefore seems that, of uptake given most banking service providers are located in urban areas, urban-based Theadults are less most concerned than those in rural areassignificant driver of about proximity to banking services. uptake of banking service is the need to save. The least6.3 significantUptake of banking sdriverervices is the need to make payments.6.3.1 Drivers of uptake The most significant driver of banking service uptake is the need to save. Figure 8, below, shows that The37% of banked adults most significant began usingdriver of banking banking services service uptakein order is to save. the needThe next most common reason to save. Figureto open a bank account was to have somewhere in which to deposit a salary or wages. This 8, below, shows that 37% of banked adults began using banking aligns with services in order to save. The next most common reason to open a bank the fact that 25% of banked adults receive a regular salary or wage from formal and/or informal sector account was to have somewhere in which to deposit a salary or wages. Thisemployment. aligns with the fact that 25% of banked adults receive a regular salary or wage from formal and/or informal sector employment. Figure 8: Drivers of bankingFigure 8: serviceDrivers uptakeof banking service uptake

To save 37%

To receive salary/wages 26%

To pay school fees 15%

To keep money safe 11%

To get credit/loan 6%

To make payments/receive money 4%

% of adults who have/use bank services

Account6.3.2 Aownershipccount ownership MoreMore than eight out of ten than eight out of ten UgandansUgandans who use banking services have accounts in their own names who use banking services . A havesmaller proportion accounts in their (14%) own access bank services indirectly, either through group membership names. A smaller proportion (14%) access , by using banksomeone else’s account services indirectly,, or eitherby making throughover -groupthe-counter (OTC) payments. Figure 9 presents membership, by the findings using someone else’s account, or by making over-the-counter (OTC) on account ownership. payments. Figure 9 presents the findings on account ownership.

7 Bank services that were mapped included bank branches, ATMS and bank agents.

13 Banking and Financial Inclusion in Uganda

Figure 9: Account ownership

Figure 9: Account ownershipFigure 9: Account ownership Own account 74% Joint account 7% Own account 74% Group account 7% Joint account 7% Someone else's account 2% Group account 7% OTC payments 10% Someone else's account 2% OTC payments 10% % of bank population

% of bank population Figure 10 shows the types of services used by adults who are banked. Figure 10 Just overshows 80% havethe types of savingss ervicesaccounts, used by adults who are banked. which are by far the mostJust over 80% have savings accountspopular, which are by far the most popular service service. Debit cards are the next most. Debit cards are the next most common service common service used Figure 10 shows the types of services used by adults who are banked. Just over 80% have savings used by banked Ugandans. by banked Ugandans. TheThe low low levellevel of of usageusage of fixed deposit accounts of fixed deposit accounts,, in comparison wit h the accounts, which are by far the most popular service. Debit cards are the next most common service muchin comparison higher usage of savings accounts with the much higher, indicates that Ugandans are usage of savings accounts, saving for short -term, rather than indicatesused by banked Ugandans. that Ugandans areThe low saving level of for short-term,usage of fixed deposit accounts rather than long- , in comparison with the long-term, reasons. term,much reasons. higher usage of savings accounts , indicates that Ugandans are saving for short-term, rather than Figurelong 10:- term,Types reasons of bank. services used Figure 10: Types of bank accounts held Figure 10: Types of bank accounts held Savings account 81% ATM/Debit card 41% Savings account Current account 19% 81% ATM/Debit card Loan account 9% 41% Current account Fixed deposit account 2% 19% Loan account Credit card 2% 9% Fixed deposit account 2% Credit card 2% Whereas debit cards are used% of banked adults with a current account, the ‘ATM/debit’ card category is separated from ‘savings account’ because some adults % of banked adults do not use cards with their savings accounts. Whereas debit cards are used with a current account, the ‘ATM/debit’ card category is separated from ‘savings account’ because some adults do not use cards with their savings accounts. FrequencyWhereas debit and activecards are usage used with a current account, the ‘ATM/debit’ card category is separated from 6In.3 terms.3‘savings account Fr ofeq howuen cfrequentlyy ’a because some adults do not use cards nd acti Ugandansve usage use banking services,with their savings accounts. the findings illustrated by Figure 11 demonstrate most use their bank once In or terms more6.3. of3a month,how Freq frequently u ebutncy not an Ugandans dweekly. active It use u iss averyg banking e rare servicesfor Ugandans, the findings to accessillustrated by Figure 11 demonstratebanking services most use their bank once or more a month, but on a daily basis, even in urban areas.not weekly. It is very rare for Ugandans In terms of how frequently Ugandans use banking services, the findings illustrated by Figure 11 to access banking services on a daily basis, even in urban areas. demonstrate most use their bank once or more a month, but not weekly. It is very rare for Ugandans to access banking services on a daily basis, even in urban areas.

14 Thematic Report

Figure 11: Frequency ofFigure 11: Frequency of usage of bank services Figure 11: Frequency of usage of bank servicesusage of bank services

% of all banked adults% of all banked adults 8%8% 5151%% 4040%% % of banked males% of banked males 8%8% 4949%% 4242%% % of banked females% of banked females 7%7% 5454%% 3838%% % of rural-based banked adults % of rural-based banked adults 5%5% 4848%% 4747%% % of urban-based banked adults % of urban-based banked adults 1010%% 5555%% 3434%%

DailyDaily Once or more a week but not dailyOnce or more a week but not daily Once or more a month but not weeklyOnce or more a month but not weekly Less than once a monthLess than once a month

As Figure 12 shows, 74% of banked adults are defined as ‘active’ users of banking services (that is, they have used banking services at least onceAs As Figure 12Figure 12 in the shows, shows, 90 days74% of banked adults are 74% of banked adults are prior to respondingdefined as ‘defined as ‘ to activetheactive ’survey). users of ’ users of banking bankingEighteen services ( services ( perthat is, that is, centthey they have of have bankedused used banking banking Ugandans, services services at at least on least the once once otherin in the the 90 hand, 90 days days prior had prior to to notresponding responding used any to to the the survey). survey). bankingEighteen per cent of banked Ugandans, on the other hand, had not used any banking services for at Eighteen per cent of banked Ugandans, on the other hand, had not used any banking services for at services for at least six months. The main reason cited for beingleast six months.least six months. inactive The main reason cited for being inactive The main reason cited for being inactive was not having a need to usewaswas anot having a need not having a need bank. This couldto use a banto use a ban eitherk. This k. This becould either be indicative of could either be indicative of indicative of servicesservicesservices no longerno longer being relevant to the individual no longer being relevant to the individual being relevant to the individual (i.e. a supply (i.e. a supply (i.e.-side -side abarrier) or supply-sidebarrier) or the individual not having enoughthe individual not having enough barrier) or the individual money with which to money with which to not havingoperate operate enoughanan account ( account ( moneya a demanddemand with-side -side barrier). whichbarrier). to operate an account (a demand-side barrier).

Figure 12: Most recentFigure 12: Most recent usage of Figure 12: Most recent usage of usage of bankig servicesbankingbankingservicesservices

Yesterday/today 5% Yesterday/today 5% In the past 7 days 10% In the past 7 days 10% In the past 30 days 43% In the past 30 days 43% In the past 31-90 days 16% In the past 31-90 days 16% More than 90 days ago but less than 6 months ago 8% More than 90 days ago but less than 6 months ago 8% 6 months or longer ago 18% 6 months or longer ago 18%

% of adults who have/use bank services % of adults who have/use bank services

Figure 13, below, shows that banked women are more likely than their Figure 13, below, shows that banked women are more likely than their male counterparts to have used Figure 13, below, shows that banked women are more likely than their male counterparts to have used malebanking counterparts services within the to 30 days prior to have used bankingthe study. Those living in services withinurban areas the are30, as expected, days banking services within the 30 days prior to the study. Those living in urban areas are, as expected, prioralso more likely to have used services recently than those in rural areas. to the study. Those living in urban areas are, as expected, The latter cite distance also to also more likely to have used services recently than those in rural areas. The latter cite distance to morebank branches as being a barrier to active usage. likely to have used services recently than those in rural areas. The latterbank branches as being a barrier to active usage. cite distance to bank branches as being a barrier to active usage.

18 18

15 Banking and Financial Inclusion in Uganda

Figure 13: Active UsageFigure 13: Active usage by gender and geography by gender and geography Figure 13: Active usage by gender and geography Banked males 55% 17% 28%

Banked males 55% 17% 28% Banked females 61% 15% 24%

Banked females 61% 15% 24% Rural-based banked adults 53% 17% 30%

Rural-based banked adults 53% 17% 30% Urban-based banked adults 62% 15% 22%

Urban-based banked adults 62% 15% 22% 30 days active 90 days active Inactive

30 days active 90 days active Inactive FigureFigure 14 14 givesgives an overview of active usage by means of employment. Those an overview of active usage by means of employment. employed in the formal Thosesector employed, who therefore in thereceive salaries through their bank accounts, are formal sector, who therefore receivethe most salaries likely to be active Figure 14 gives an overview of active usage by means of employment. Those employed in the formal throughusers. theirUgandans who rely on bank accounts, farming areor fishing for income the most likely are less likely to be active bank users, while to be active users. sector, who therefore receive salaries through their bank accounts, are the most likely to be active Ugandansnearly half of dependants who rely on are farmingconsidered inactive or fishing. for income are less likely to beusers active. Ugandans who rely on bank users, farming whileor nearly fishing for income half of dependants are less likely to be active bank users, while are considered nearly half of dependants are considered inactive. inactive. Figure 14: Active usage and main income-generating activity

Figure 14: ActiveFigure 14: Active usage and main income usage and main income-generating-generating activity activity Formal sector employed 90% 4% 6%

Formal sector employed Farmers/fishers 49% 90% 20% 324%% 6 %

Farmers/fishers Business owners 49% 57% 20% 20% 32% 23%

Business owners Dependants 34%57 % 22% 20% 4423%%

Dependants 34% 22% 44% 30 days active 90 days active Inactive

30 days active 90 days active Inactive Among inactive users, business owners are the most likely to cite the fact that services do not meet their needs. AmongAmong inactive users, inactive business owners are users, businessthe most owners likely to cite the are the most fact t likelyhat services to citedo not meet the fact that services do not meet their needs. their needsAmong banked Ugandans, as Figure 15 shows, the most commonly used means of accessing banking . Among services is a bank branch, followed by an ATM. banked Ugandans, as Figure 15 shows, the most commonly Among banked Ugandans, as Figure 15 shows, the most commonly used means of accessing banking used means of accessing banking services is a bank branch, followed services is a bank branch, followed by an ATM.With regards to specific services used, the FinScope findings further reveal that: by an ATM. • Women (52%) are more likely than men (33%) to use an ATM With regards to specific services used, the FinScope findings further reveal that: With regards• Urban to-based banked adults (50%) are significantly more likely than specific services used, the FinScope findingsthose in rural areas further (29%) • Women (52%) are more likely than men (33%) to use an ATM reveal that:to use an ATM • Urban-based banked adults (50%) are significantly more likely than those in rural areas (29%) • Fifty per cent of formally employed Ugandans and 60% of dependants reported using an ATM •• Womento use an ATM (52%) are more likely than men (33%) to use an ATM • Farmers reported using an agent for banking services more often than using other channels; • Fifty per cent of formally employed Ugandans and 60% of dependants reported using an ATM •• Urban-basedan indication of the potential of agent banking to banked adults (50%) are significantlyreach a large section of the population. more likely • thanFarmers those reported using an agent for banking services more often than using other channels in rural areas (29%) to use an ATM ; an indication of the potential of agent banking to reach a large section of the population. •• Fifty per cent of formally employed Ugandans and 60% of dependants reported using an ATM •• Farmers reported using an agent for banking services more 19

16 Thematic Report

often than using other channels; an indication of the potential of agent banking to reach a large section of the population. Figure 15: Channels used to access bank services Figure 15: Channels used to access bank services

Figure 15: Channels used to access bank services Bank branch 73%

Bank branchATM 41% 73%

Mobile phoneATM 12% 41% Mobile phone Internet 2% 12% Internet Agent 2% 5% Agent 5% % banked adults who use the channel % banked adults who use the channel Bank servicesBank services are most likely to be used for are most likely to be used fortransferring transferring money, money,making payments and saving ( see making Bank services are most likely to be used for Figure 16). Only 11% of bank clientspayments and saving (see, on the other hand, Figuretransferring 16). Only usemoney 11% credit or loan facilities., making payments and saving (of bank clients, see on the otherFigure 16). Only 11% of bank clients hand, use credit or loan, on the other hand, facilities. use credit or loan facilities. Figure 16: Types of services used by bank clients Figure 16: Types of servicesFigure 16: Types of services used by bank clients most used by bank clients Payment services Payment services 40% 40%

52% Insurance services 52% Saving services Insurance services Saving services

1111%%

Credit servicesCredit services

According to the survey findings, there are no Ugandans who use only bankAccording to the survey findings, there services and no other financial are no are no Ugandansservices.Ugandans who use only bank services and no other who use only bank services and no other Those who access banks alsofinancial service use non-bankss.. Those who access banks Those who access banks formal services also use non also use non and/or-bank formal services and/or informal services -informalbank formal services and/or informal services services (see Figure 17(see Figure 17 below). More than half of the banked population (63%) also use informal services. In below). More than half of the banked population (63%) also use informaladdition, 36% of services.UgandansUgandans In addition, who who holdhold 36% bank accounts access financial servi bank accounts access financial servi of Ugandans who holdces from non bankces from non -bank formal -bank formal accountsservice providers. access financialThese trends seem toThese trends seem to services from indicate that Ugandans indicate that Ugandans non-bank formal consider banking services inadequate consider banking services inadequate service providers.when it comes to providing for their full range of financial needs. These trends seem to indicate that Ugandans consider banking services inadequate when it comes to providing for their full Figure 17: Overlaps in uptake of banking and other financial services range ofFigure 17: Overlaps in uptake of banking and other financial s financial needs. ervices

20 20

17 Banking and Financial Inclusion in Uganda

Figure 17: Overlaps in uptake of banking and other financial services

Figure 18,Figure 18 below,, below shows, shows that 93% of banked adults also use mobile money services to send that 93% of banked adults also use mobile money to, money servicesor receive money from to send ,money other parts of the country. to, or receive money from, other parts of the country.

Figure 18: Non-bankFigure 18: Non formal services-bank formal services used by bankedused by banked adults adults

Mobile money services 93%

Pension funds 14%

SACCO services 13%

MFI services 11%

Insurance services 6%

Cooperative services 2%

Capital markets 0.40%

% of banked population who have/use the service

Figure 19 illustrates that 44% of adults who have bank accounts also Figure 19 illustrates that 44% of adults who have bank accounts also access savings from savings groups access savings from savings groups or SACCOS. An additional 24% and or SACCOS. An additional 24% and 17% access savings from ROSCAs and burial societies respectively. 17% accessThe savings relatively low from usage ROSCAs of burial and societies burial can societies be explained respectively. by their limited The penetration and relativelyconveni low enceusage. Only a very of burial small proportion societies can (3%) beof banked explainedUgandans by borrow from informal money their limited penetrationlenders. and convenience. Only a very small proportion (3%) of banked Ugandans borrow from informal money lenders.

18 Thematic Report

Figure 19: Informal services used by the banked population Figure 19: Informal services used by the banked population

Savings group/VSLAs 44%

ROSCAs 24%

Burial societies 17%

Money lenders 3%

% of banked population who have/use the service

There are a numberThere are a number of other of other reasons reasons why adults who have bank accounts continue to use why adults who have bank the services accounts continueof other types of provider to use the: services of other types of provider: •• Microfinance• Microfinance institutions institutions (MFIs) (MFIs) and cooperative services and cooperative give them access to credit services services give them accessor loans to credit services or loans • SACCO membership provides networking opportunities, as well as access to credit •• SACCO membership• Informal group membership (savings groups/VSLAs, ROSCAs and burial societies) provides networking opportunities, as well allows access as access to to insurancecredit , as well as a lump sum during pay-out • Money lenders can provide quick access to credit • Informal group membership (savings groups/VSLAs, ROSCAs and • • Most banked adults who access loans from SACCOs or ROSCAs lack the collateral required to burial societies)access loans from banks allows access. to insurance, as well as a lump sum during pay-out

•• Money lenders can provide quick access to credit •• Most banked adults who access loans from SACCOs or ROSCAs lack the collateral required to access loans from banks.

SAVINGS BEHAVIOUR OF BANKED ADULTS Banks are the most popular avenues of savings. Mobile services are the next most popular way to save.

More than half (54%) of Ugandan adults save, and 75% of those who are banked do so. Table 3 gives a demographic overview of banked adults who save. These findings indicate that those who do so are most likely to be male, aged between 26 and 35, have achieved secondary education, and be employed in the formal sector.

19 Banking and Financial Inclusion in Uganda

Table 3: Profile of banked adults who save

Banked population Characteristics Savers Non savers Number of adults 1,586,976 502,977 % of adults 76% 24% Geographical setting Rural 49% 47% Urban 51% 53% Gender Male 58% 40% Female 42% 60% Age Category 16 to 25 years 24% 34% 26 to 35 years 37% 26% 36 to 45 years 15% 21% 46 to 55 years 13% 14% 56 to 65 years 7% 3% Older than 65 years 4% 3% Educational level Never went to school 3% 7% Primary levels 26% 30% Secondary levels 39% 33% Specialized training 26% 19% Tertiary 6% 11% Main source of income Farmers/fishers 34% 31% Dependents 11% 27% Casual labourers 13% 9% Business owners: traders 5% 10% Formal sector employed 24% 16% Business owners: service 3% 3% providers Informal sector employed 2% 0% 20 Thematic Report

Banked adults regard banks as the safest way to save; 69% of those who save do so with a bank. Mobile services are the next most popular way to save, followed by savings groups/VSLAs. Just over a tenth of banked Ugandans who save do so by keeping money at home (see Figure 20). Figure 20: Savings mechanisms used by banked adults who save Figure 20: Savings mechanisms used by banked adults who save Figure 20: SavingsFigure 20: Savings mechanisms used by banked adults who save mechanisms used by banked adults who save Bank 69% Bank 31% 69% SG/VSLABank 2831% % 69% SG/VSLA 15% 2831%% SG/VSLAROSCA 11%15 % 28% ROSCA 8%11 15%% Give to household member to keep safeROSCA 3% 811% % Give to household member to keep safe 1%3% 8 % Give to household member to keep safe 13% 1% % of banked adults who save % of banked adults who save % of banked adults who save

As shown in Figure 21, below, almost half of banked Ugandans report that the most important factor As showninAs shown in Figure 21, below, almost choosing where a in Figure 21,nd how to save is the safety of their below, almost half of banked half of bankedUgandansmoney. Around one in three is concerned first report that the most important Ugandans report factor As shown in Figure 21, below, almost half of banked Ugandans report that the most important factor that theand foremost about how quickly they will be able to access their savings.in most choosing where a importantnd how to save is the safety of their factor in choosing wheremoney. and Around one in three is concerned first how to save is in choosing where and how to save is the safety of their money. Around one in three is concerned first the safety and foremost about how quickly they will be able to access their savings. of their money. Around one in three is concerned first and foremostand foremost about how quickly they will be able to access their savings. about how quickly they will be able to access their savings. Figure 21: Criteria applied when choosing savings mechanisms Figure 21: CriteriaFigure 21: Criteria applied when choosing savings mechanisms applied when choosing savings mechanisms Figure 21: Criteria applied when choosing savings mechanisms Safety 45% Safety 45% Quickest access to savingsSafety 29% 45% Quickest access to savings 29% Most convenient (proximity)Quickest access to savings 9% 29% Most convenient (proximity) 9% Most convenient (proximity)Best interest 5%9 % Best interest 5% Lowest charges/costBest interest 35%% Lowest charges/cost 3% Lowest charges/cost 3% % of banked adults who save % of banked adults who save

% of banked adults who save Figure 22Figure 22 shows that 48% of adults who save do so due shows that 48% of adults who save doin order to so in order smooth to their smooth cash flow. Anoth er Figure 22 shows that 48% of adults who save do so due in order to smooth their cash flow. Another their cash15% save for business purposes flow. Another 15% , and 14% do sosave for business because they are planning to purposes, and buy or renovate a house. 14% do so becauseFigure 22 shows that 48% of adults who save do so due 15% save for business purposes they are planning to, and 14% do so buy or renovate because they are planning to ain order to house. smooth their buy or renovate a house. cash flow. Another 15% save for business purposes, and 14% do so because they are planning to buy or renovate a house. Figure 22: Main drivers of savings behaviour Figure 22: Main drivers of savingsFigure 22: Main drivers of savings behaviour behaviour Figure 22: Main drivers of savings behaviour To help with regular expenses 30% To help with regular expenses To help cope with unexpected expenses 18% 30% To help cope with unexpected expensesTo help with regular expenses 30% Business purposes 1518% % To help cope with unexpected expensesBusiness purposes 18% Buy/rennovate residential land/house 1415%% Buy/rennovate residential land/houseBusiness purposes 15% Buying property to rent out 8% 14% Buy/rennovate residential land/houseBuying property to rent out 14% Farming/fishing purposes 6%8% Buying property to rent outFarming/fishing purposes 8% Buying means of transport for personal use 2% 6% Buying means of transport for personal useFarming/fishing purposes 6% Money for when I’m old 22%% Buying means of transport for personal useMoney for when I’m old 2% Buying household goods 12%% Money for when I’m oldBuying household goods 21%% Buying household goods 1% % of banked adults who save % of banked adults who save

% of banked adults who save

24 24 24

21 Banking and Financial Inclusion in Uganda

BORROWING BEHAVIOUR OF BANKED ADULTS Only 19% of banked adults who borrow do so from banks. Nearly half borrow from savings groups/VSLAs

More than half of Ugandans who use banking services are borrowers. Table 4, below, presents a demographic overview of both those who borrow and those who do not. The figures indicate that those who borrow are most likely to be rural-based, have achieved secondary education and rely on farming or fishing for income. Table 4: Profile of banked adults who borrow

Banked population

Characteristics Borrowers Non-borrowers Number of adults 1,194,703 895,250 % of adults 57% 42% Geographical setting Rural 53% 41% Urban 47% 59% Gender Male 54% 54% Female 46% 46% Age of category 16 to 25 years 26% 27% 26 to 35 years 33% 35% 36 to 45 years 18% 15% 46 to 55 years 14% 12% 56 to 65 years 6% 7% Older than 65 years 2% 5% Educational level Never went to school 2% 7% Primary levels 30% 22% Secondary levels 35% 41% Specialised training 27% 21% Tertiary 6% 9% 22 Thematic Report

Banked population

Characteristics Borrowers Non-borrowers Main source of income Farmers/ fishers 37% 29% Dependents 11% 20% Casual labourers 12% 13% Business owners: traders 8% 4% Formal sector employed 23% 20% Business owners: service providers 4% 2% Informal sector employed 1% 2% Interestingly, only 19% banked adults who borrow actually do so from banks (see Figure 23 below). Instead, nearly half borrow from savings groups/VSLAs, while just under a third borrow from friends and family. Figure 23: Sources of credit Figure 23: Sources of credit Figure 23: Sources of credit SGSA/VLSA 46% Family/friendsSA/VLSA 32% 46% Family/friendsBank 19% 32% BankMFI 9% 19% SACCOMFI 7%9% Mobile money service providerSACCO 5%7% Mobile money service providerCredit institution 2%5 % MoneyMoneylender in community LenderCredit institution 22%% Moneylender in communityGovernment scheme 22%% Government scheme 2% % of banked adults who borrow % of banked adults who borrow For banked Ugandans, drivers of borrowing behaviour are similar to those of savings behaviour. Smoothing cash flow is, again, the number one reasonFor (see banked FigureUgandans 24,, drivers below). of borrowing behaviour are similar to those of savings behaviour. Smoothing cash flow is, again, the number one reasonFor banked Ugandans, drivers of borrowing behaviour (see Figure 24 are similar , below to those). of savings behaviour. Figure 24: DriversSmoothing cash flow is, again, the number one reason of borrowing behaviour (see Figure 24, below). Figure 24: Drivers of borrowing behaviour Figure 24: Drivers of borrowing behaviour To help with regular expenses 43% To help with regular expensesFor business purposes 19% 43% To help with unexpected expensesFor business purposes 12% 19% Buy/renovate residential land/houseTo help with unexpected expenses 7% 12% Buy/renovate residential land/houseFor farming/fishing purposes 67%% For farming/fishing purposesBuy property to rent out 3%6 % Buy means of transport for personal useBuy property to rent out 1%3% Buy means of transport for personal use 1% % of banked adults who borrow % of banked adults who borrow Figure 25, below, shows that when choosing a source of capital, 25% of borrowers seek out a lender wFigure 25ho will provide , below,them with the shows that when choosing a source of capital, 25% of borrowers quickest access to credit. Sixteen per cent cited ease of use seek out a as their lender main criterion for choosing a lender,who will provide them with the quickest access to credit while 15% look for low interest rates. Sixteen per cent. cited ease of use as their main criterion for choosing a lender, while 15% look for low interest rates.

26 26

23 Banking and Financial Inclusion in Uganda

Figure 25, below, shows that when choosing a source of capital, 25% of borrowers seek out a lender who will provide them with the quickest access to credit. Sixteen per cent cited ease of use as their main criterion for choosing a lender, while 15% look for low interest rates.

Figure 25: Criteria for choosing lenders Figure 25: Criteria for choosing lenders

Quickest access to the money Figure 25: Criteria for choosing lenders25%

Easy/simple to use 16% Quickest access to the money 25% Proximity – convenient access 16% Easy/simple to use 16% Interest rates are low 15% Proximity – convenient access Repayment terms suit me 11% 16%

Interest rates are lowTrust 7% 15%

Repayment terms suit meConfidentiality 2% 11%

Trust 7% % of banked adults who borrow

Confidentiality 2% Many factorsMany factors discourage discourage bankedbanked Ugandans Ugandans from borrowing from (see Figure 26) borrowing. A third of those who do (see Figure 26).not borrow said that they already had enough income to A third of those who do not% of banked adults who borrow borrow cover their expensessaid that they. Just over a quarter already do had enoughnot believe in borrowing income to cover (which may be for cultural or religious reasons), while their expenses. Just over a quarter 23% doare notconcerned believe inthat they would not borrowing (whichbe able to maymeet the repayment terms. Only 5% of banked adults who do not be for cultural or religious reasons), Many factors discourage borrow cited interest rates banked Ugandans being too high, and from borrowingjust 4% said they (see Figure 26) did not possess . A third of those who do the necessary while 23% are concerned that they would not be able to meet the not borrow said that they already had enough income to collateral. Noticeably, barriers to borrowing for those who are banked are mainly demandcover their expenses. Just over a quarter-side, rather do repayment terms. Only 5% of banked adults who do not borrow cited not believe in borrowingthat supply-side, in nature. (which may be for cultural or religious reasons), while 23% are concerned interest ratesthat they would not being too high,be able to andme justet the repayment terms. Only 5% of banked adults who do not 4% said they did not possess the necessaryborrow collateral.cited interest Noticeably, rates being Figure 26 : Barriers to borrowingbarriers too high to, and borrowingjust 4% said for they those did not who possess are the necessary banked arecollateral mainly. Noticeably, barriers to borrowing for those who are banked are mainly demand demand-side, rather that supply-side, in nature. -side, rather Income is enough to cover expenses that supply-side, in nature. 33% Don’t believe in borrowing 26% Figure 26: BarriersWorried would not be able to pay back the money to borrowing 23% Figure 26 : Barriers to borrowing Interest charged too high 5% No security or collateral 4% Income is enough to cover expenses Not allowed to borrow bt spouse/family 1% 33% Cannot get a loan because of credit historyDon’t believe in borrowing1% 26% Worried would not be able to pay back the moneyDo not know where to borrow from 1% 23% Interest charged too high 5% % of banked adults who didn’t borrow No security or collateral 4%

Not allowed to borrow bt spouse/family 1% 6.6 Digital behaviour of banked adults Cannot get a loan because of credit history 1% An analysis of attitudes towards cash and technology reveals that nearly nine in ten Ugandans are Do not know where to borrow from 1% prepared to learn and use new technology when it comes to payments, and 80% of banked adults do not like to carry large amounts of cash. Over three-quarters, however, said they still prefer to use cash to make payments (see Figure 27). % of banked adults who didn’t borrow

6.6 Digital behaviour of banked adults An analysis of attitudes towards cash and technology reveals that nearly nine in ten Ugandans are prepared to learn and use new technology when it comes to payments, and 80% of banked adults do not like to carry large amounts of cash. Over three-quarters, however, said they still prefer to use cash 27 to make payments (see Figure 27).

24 Thematic Report

DIGITAL BEHAVIOUR OF BANKED ADULTS Nearly 90% of Ugandans are prepared to learn and use new technology for payments but over three-quarters still prefer to pay by cash.

An analysis of attitudes towards cash and technology reveals that nearly nine in ten Ugandans are prepared to learn and use new technology when it comes to payments, and 80% of banked adults do not like to carry large amountsFigure 27: Attitudes towards cash and technology of cash. Over three-quarters, however, said they still prefer to use cash to make payments (see Figure 27). Prepared to learn how to use new technology 89% Figure 27: Attitudes towards cash and technology Do not like carrying large amounts of cash 80%

Prefer to use cash because everybody uses cashFigure 27: Attitudes towards cash and technology 76%

Believes it is more risky to carry cash than to use cards … 75% Prepared to learn how to use new technology 89% Prefer to pay cash rather than paying by phone or … Do not like carrying large amounts of cash 80% 69%

Would rather deal with people than machines such as Prefer to use cash because everybody uses cash … 76%59 %

Believes it is more risky to carry cash than to use cards … 75% % of banked adults Prefer to pay cash rather than paying by phone or … 69%

Would rather deal with people than machines such as … 59%

% of banked adults

As Figure As Figure 28 shows, remittances, buying goods or services, and bill payments28 shows, remittances, buying goods or services, are the k andey drivers of bill use payments of digital payments. are the key drivers of use of digital payments.

Figure 28:As Figure 28 shows, remittances, buying goods or services, and bill payments Drivers of digital payments are the key drivers of use of digital payments. Figure 28: Drivers of digital payments

Remittance Figure 28: Drivers of digital payments 86% Buy goods/services 62% Remittance Bill payments 26% 86% Buy goods/services 62% Bill payments 26%% of banked adults

% of banked adults

6.7 Barriers to uptake of banking services 6.7Most BUgandan arriers to adults (89%uptake of ba, ornki n16.5 million) are unbanked. g services As the findings summarised in Figure 29 Most showUgandan , the main adults (89%barriers, or to 16.5 million) are unbanked. using banks originate from As the findings the demand summarised in Figure 29 side. Chief among them is showinsufficient income, which was cited by over half of unbanked Ugandans. , the main barriers to using banks originate from the demand side. Chief Supply among -side perceptions them is also insufficient income, which was cited by over half of unbanked Ugandans. prevent uptake of banking services. These include proximity to Supply services,-side perceptions inability to also maintain the prevent uptake of banking services. These include proximity to services, inability to maintain the

28 28

25 Banking and Financial Inclusion in Uganda

BARRIERS TO UPTAKE OF BANKING SERVICES The main barriers to using banking services is a perception of insufficient income, cited by over half of unbanked Ugandans.

Most Ugandan adults (89%, or 16.5 million) are unbanked. As the findings summarised in Figure 29 show, the main barriers to using banks originate from the demand side. Chief among them is insufficient income, which was cited by over half of unbanked Ugandans. Supply- side perceptions also prevent uptake of banking services. These include proximity to services, inability to maintain the minimum balance required by banks and the perceived high cost of banking services. minimum balance required by banks and the perceived high cost of banking services. Figure 29: Barriers to banking Figure 29: Barriers to banking

Insufficient money 53% Does not know how to open a bank account 3% More than 60% of Does not understand benefits of having a bank account 2% unbanked adults report demand side Does not have the documentation required 2% barriers Does not trust banks 2% Feels intimidated/uncomfortable in a bank 1% Banks are too far away 13% Perceived supply- Cannot maintain the minimum balance 9% side Bank service charges are too high 7% barriers

% of unbanked adults

6.8 Opportunities for banking Opportunities to increase inclusion in the banking sector and to expand the reach of banking services lie in serving the indirectly banked and in extending services to the unbanked. Sections 6.8.1 and 6.8.2 provide further detail on these opportunities.

6.8.1 Indirectly banked Although most banked adults (86%) use bank services in their own names, some (14%) use them through a group account or someone else’s account, or use OTC services (10%). The indirectly unbanked, who constitute 300,000 Ugandans, represent the first and most obvious opportunity for banks. Table 5 presents a demographic overview of Uganda’s indirectly banked.

Photo: Uganda Bankers’ Association (UBA)

26 Thematic Report

OPPORTUNITIES FOR BANKING Opportunities to increase uptake of banking services is in serving the 14% who are currently using group accounts and 10% who use OTC services.

Opportunities to increase inclusion in the banking sector and to expand the reach of banking services lie in serving the indirectly banked and in extending services to the unbanked. Indirectly banked Although most banked adults (86%) use bank services in their own names, some (14%) use them through a group account or someone else’s account, or use OTC services (10%). The indirectly banked, who constitute 300,000 Ugandans, represent the first and most obvious opportunity for banks. Table 5 presents a demographic overview of Uganda’s indirectly banked. Table 5: Profile of indirectly banked adults

Banked population Characteristics Use bank services in own name. Indirectly banked. Number of adults 1,795,533 294,420 Geographical setting Rural 46% 63% Urban 54% 37% Gender Male 55% 45% Female 45% 55% Age category 16 to 25 years 24% 41% 26 to 35 years 37% 17% 36 to 45 years 18% 11% 46 to 55 years 14% 7% 55 to 65 years 4% 20% Older than 65 years 3% 4% Educational level Never went to school 3% 8% Primary levels 26% 29% 27 Banking and Financial Inclusion in Uganda

Banked population Characteristics Use bank services in own name. Indirectly banked. Secondary levels 35% 53% Specialized training 27% 10% Tertiary 8% Main source of income Formal sector employed 25% 2% Informal sector emplyed 2% Farmers/fishers 48% 50% Business owners - traders 7% 6% Business owners - service 3% 4% providers Casual labourers 13% 7% Dependents 13% 25% According to these figures, indirectly banked individuals are most likely to be rural-based, aged between 16 and 25, and rely either on farming or fishing for income, or be dependent on a household member to provide them with money. These individuals are most likely to be students, whose main service needs include: •• money transfer services (for receiving money from their household members) •• digital payment facilities to pay school fees and other opportunity costs •• educational savings and loan facilities The indirectly banked are most accessible as 37% are urban-based, 26% own mobile phones, 87% have proof of identity, 21% have documentation to prove their residential addresses and 20% have both proof of identity and residence. Unbanked population Profile of the unbanked Table 6 gives an overview of the characteristics of these 16.5 million unbanked adults in Uganda. They are most likely to be rural-based, female, aged between 16 and 25 and have achieved only primary school education. They also tend to rely either on others or on farming/ fishing for income. 28 Thematic Report

Table 6: Profile of the unbanked population

Bank Status Characteristics Unbanked Banked Number of Adults 16,482,688 2,089,953 % of adults 89% 11% Geographical setting Rural 80% 48% Urban 20% 52% Gender Male 45% 54% Female 55% 46% Age Category 16 to 25 years 33% 26% 26 to 35 years 26% 34% 36 to 45 years 17% 17% 46 to 55 years 11% 13% 56 to 65 years 9% 6% Older than 65 years 5% 3% Education level Never went to school 16% 4% Primary levels 59% 27% Secondary levels 23% 38% Specialized triaining 2% 24% Tertiary 0% 7% Main source of income Farmers/ fishers 49% 33% Dependents 20% 15% Casual labourers 15% 12%

Business owners: traders 6% 6% Formal sector employed 1% 22% Business owners: service providers 2% 3% Informal sector employed 2% 2% 29 Banking and Financial Inclusion in Uganda

Segmenting the unbanked Six million Adults (32%) provides low hanging fruits as they already meet KYC requirements but are not banked. Banks have to invest in product development and channel upgrading in order to include three million (16%).

The 16.5 million unbanked adults in Uganda are not homogeneous in terms of their demographic characteristics, as is illustrated in Table 6. They therefore have varied financial needs, and a ‘one-size-fits-all’ approach to attracting them to banking will not be effective. The objective of segmenting the unbanked population is to identify smaller segments with distinct financial service needs, to allow for better targeting. The first step in the segmentation process is the identification of those unbanked adults who have a similar profile to the current banked population (and who therefore do not appear to have any significant barriers to uptake). Three clusters were identified: the banked, bankable after upgrading (development segment) and the unbankable. Table 7 presents the size of these market segments and Table 8 details their demographic characteristics. Table 7: Size of the unbanked segments

Unbanked Segments

Bankable Development Unbankable

Number of adults 6,168,360 3,148,258 7,166,070

% of unbanked adults 32% 16% 37%

Table 8: Geographic and demographic distributions of unbanked segments

% 0f adults per unbanked segment Characteristics Bankable Development Unbankable

Geographical setting

Rural 62% 87% 92%

Urban 38% 13% 8% 30 Thematic Report

% 0f adults per unbanked segment Characteristics Bankable Development Unbankable

Gender

Male 41% 54% 45%

Female 59% 46% 55%

Age category

16 to 25 years 49% 15% 27%

26 to 35 years 27% 21% 26%

36 to 45 years 12% 18% 20%

46 to 55 years 7% 17% 12%

55 to 65 years 4% 18% 9%

Older than 65 years 1% 11% 6%

Education level

Never went to school 1% 28% 23%

Primary levels 46% 72% 65%

Secondary levels 47% 11%

Specialized training 5% 1%

Tertiary 1%

Main source of income

Formal sector employed 2% 0% 0%

Informal sector employed 4% 2% 1%

Farmers/fishers 37% 55% 58%

Business owners traders 8% 7% 4%

Business owners service 3% 2% 2% providers Casual labouers 17% 11% 15%

Dependents 25% 19% 17%

Bankable segment The bankable segment comprises 6.2 million adults. Their demographic profile, level of connectivity and level of wealth are all largely the same as that of the current banked population. There is no obvious barrier to banking for the individuals in this segment. •• Ugandans in the bankable segment are significantly more likely than other unbanked adults to be from households with higher 31 Banking and Financial Inclusion in Uganda

incomes. Adults in the bankable segment can in general be described as urban-based, young adults who are either studying or have just completed studying. As with the indirectly banked, their main service needs could include: •• money transfer services (for receiving money from household members) •• digital payment facilities to pay school fees and other opportunity costs •• educational savings and loan facilities There are also a number of other likely service needs that can be addressed: •• Savings needs – 56% of adults in the bankable segment save. They choose a savings mechanism based on how quickly they can access their money, as they are most likely to save to smoothen cash flow. This also means they are most likely to save on their phones, with a savings group or at home, although they regard putting their money in a bank as the safest means of saving. •• Credit needs – 46% of adults in the bankable segment borrow. Again, most of them choose a lender based on speed of access to their money as they mostly borrow to smoothen cash flow, but they also regard simplicity of the application process and proximity to the lender as important criteria. They feel most confident borrowing from family and friends or savings groups. Their asset- building aspirations may also play a part in their borrowing – 33% (2 million) aspire to buy land while 21% (1.3 million) want to build/buy a house (although 42% have no strategy to finance these plans). •• Payment needs – those in the bankable segment are more likely than others to regard carrying cash as risky, are more willing to use new technology and are less likely to prefer making payments using cash.

|| Digital payment needs – bankable Ugandans are more likely than those in other segments to need money transfer services to pay their bills or to buy goods and services. Two million adults (32%) in this segment currently use mobile phone services to pay for goods and services, while 0.5 million (7%) pay utility bills using mobile money services.

|| Remittance needs – 70% of adults (4.3 million) in the bankable segment need money transfer services to meet their remittance needs. Currently, most of them (80%) use formal services (mainly mobile money services), while 20% don’t have any digital facilities for sending and receiving money. 32 Thematic Report

Given that the saving and borrowing behaviour of those in the bankable segment is mainly driven by a need to smoothen cash flow, most don’t have reliable strategies for future financial security. In other words, their financial behaviour is driven by short-term, rather than long-term, concerns. This tendency, together with the finding that most (60%) admit that they need financial advice but tend to turn to a household or family member instead of a professional, is indicative of a need for financial education. Development segment There are about 3 million adults in the development segment. They lack some of the characteristics that would make them bankable; given the services currently offered by Ugandan banks, some changes (either on the demand or the supply side) are needed before individuals in this segment become banked. •• Accessibility – although adults in this segment have better capacity to meet KYC requirements than those in the bankable segment, they are less connected. A regression analysis revealed that connectivity is more significant for the banking sector than meeting KYC requirements. Furthermore, the geographical distribution of the adults in this segment makes them much less accessible for FSPs than those in the bankable segment – 87% live in rural areas. •• Demand-side barriers making this segment less profitable for banks are as follows:

|| They are older than those in the bankable segment – one in three are older than 55 and therefore nearing the age of becoming dependent on others for money, rather than being economically active

|| They are more likely than those in the bankable segment to rely on irregular sources of income, such as farming/fishing activities and casual labour

|| They have not obtained a secondary education, and are therefore likely to be less financially literate than those in the bankable segment

|| They are more likely than those in the bankable segment to prefer to use cash rather than technology to make payments. •• In terms of supply-side barriers, those in the development segment are more likely than those in the bankable segment to cite distance from a bank as a reason for not using banking services. 33 o They have not obtained a secondary education, and are therefore likely to be less financially literate than those in the bankable segmentBanking and Financial Inclusion in Uganda o They are more likely than those in the bankable segment to prefer to use cash rather than technology to make payments. • In terms of supply-side barriers, those in the development segment are more likely than those Unbankablein the bankable segment segment to cite distance from a bank as a reason for not using banking The unbankableservices. segment includes 7.2 million Ugandans. They are so different from the currently banked population that it is likely they 6.8.2.2.3 Unbankable segmentwill not become bankable in the short term. This segment is beyond the current banking access frontier and significant changes (on both The unbankable segment includes 7.2 million Ugandans. They are so different from the currently the demand as well as the supply side) are needed to make these banked population that it is likely they will not become bankable in the short term. This segment is beyond the current banking access frontier and significant changes (on both the demand as well as the individuals reachable. supplyOne side) are needed to make these individuals of the major factors in this is thatreachable adults. in the unbankable segment come from the country’s lowest income households. In terms One of the major factors in this is that adults in the unbankable of self-reported barriers to banking, they are significantlysegment come from themore likely country’s lowest income households. In terms of selfthan other unbanked adults to-reported barriers to banking, they are significantly more claim that they do not have enough likely than other unbanked adults to claim that they do not have enough money to justify opening a money to justify opening a bank account. bank account. Unbankable Ugandans are also very difficult for banks to access. Unbankable UgandansNinety-two per centare also very difficult for banks to access. Ninety of them live in rural areas, only -25%two per cent of them have mobile live in rural areas, phonesonly 25% and nonehave mobile phonesof them have and internetnone of them access. have internet access.

Figure Figure 30 gives 30 gives an overview an overview of the accessibility of the accessibility of adults in the of different adults segments in the in terms of connectivity and capacity to meet KYC requirements.different segments in terms of connectivity and capacity to meet KYC requirements. Figure 30: Connectivity and capacity to meet KYC requirements Figure 30: Connectivity and capacity to meet KYC requirements 94% 90% 86% 80% 82% 68% 56%

38% 33% 32% 25% 20% 19% 16% 15% 13% 9% 7% 1% 0%

Mobile phone Internet access ID documentation Proof of residence Both ownership

Currently banked Bankable Development Unabankable

7 CONCLUSIONS

Having stabilised since 2013, the banking sector in Uganda currently serves 11% of the adult population. In comparison with neighbouring countries in which a FinScope survey has been conducted, this is low. The biggest challenge for Uganda lies in the accessibility of its adult population.

34 Thematic Report

A customer accessing banking services. Photo: Bank of Uganda 35 Banking and Financial Inclusion in Uganda

CONCLUSIONS AND RECOMENDATIONS

Only 7% of adults in rural areas are banked compared to 24% in urban areas due to high cost of opening bank branches in rural areas.

The banking sector in Uganda currently serves 11% of the adult population. The biggest challenge for Uganda lies in the accessibility of its adult population. Most adults (76%) reside in rural areas, and the high cost of providing financial services to these parts of the country tends to prevent FSPs from extending their services. This means only 7% of rural Ugandans are banked, compared with 24% of those who live in towns and cities. The agency banking initiative is likely to address this, if bank agents are deliberately selected and established in a way that addresses the rural-urban divide. The need to save is a key driver of banking services; 37% of banked adults started using a bank in order to save. Single account ownership constitutes 86% of all bank account ownership, and most Ugandans (51%) use their accounts more than once a month. Bank branches are the most popular means of operating an account. More than half of the banked population (63%) also use informal services, casting a doubt as to whether banking services are relevant and adequate for many Ugandans. Opportunities to increase inclusion in the banking sector and to expand the reach of banking services lie in serving the indirectly banked and in extending services to the unbanked. Among the unbanked, this report has identified three distinct market segments: the bankable, a development segment, and the unbankable. The bankable segment comprises 6.2 million Ugandans, all of whom share similar characteristics to those who are currently banked. The development segment is made up of 3 million adults, each of whom lacks some of the characteristics that would make them bankable but represents a potential customer, should certain changes on the demand or supply side be made. The unbankable segment is beyond the current banking access frontier; significant changes would be required to make these individuals bankable. 36 Thematic Report

Innovative products and channel upgrading that bring down costs of service delivery are likely to increase uptake of banking services to 45%.

If the Ugandan banking sector were to be successful in converting all of those in the bankable segment, the banked proportion of Uganda’s adult population would rise to 45% – putting Uganda on a par with Kenya. This study therefore recommends direct marketing initiatives, innovative product development and the upgrading of delivery channels (such as agent banking) – targeted at the bankable and development sectors – are necessary to increase the reach of banking services in Uganda.

A montage of a client accessing stock exchange services online. Photo: Bank of Uganda 37 Banking and Financial Inclusion in Uganda 38 Thematic Report 39 Banking and Financial Inclusion in Uganda 40 Thematic Report

Financial Sector Deepening

Report on banking and the status of ﬁnancial inclusion in Uganda: Insights from FinScope 2018 Survey

Financial Sector Deepening Uganda (FSD Uganda) Plot 7A, John Babiha Avenue, Kololo, Kampala P.O. Box 608 Kampala, Uganda Tel: +256 414 231260 Email: [email protected]