Uganda Country Diagnostic May 2021 PRPIRMIEMAEFARIFCARICA Contents
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Uganda Country diagnostic May 2021 PRPIRMIEMAEFARIFCARICA Contents 1. Migration and Remittances 4. Remittances Market Structure • Remittance flows into and out of Uganda • Remittances value chain • Emigration and the Ugandan Diaspora • First Mile: market structure • Remittance data collection frameworks • Third Mile: market structure • Access • Pricing and Cost Drivers 2. Financial Services Landscape • PRIME Corridor Analysis • Uganda’s National Payments System Infrastructure • Payments Interoperability 5. Financial Services for Remittance Users • Financial Service Providers and Distribution Network • Remittance-linked Financial Services • Mobile Money Usage and Growth • Emerging Innovations in Remittances • ID and Know Your Customer Requirements • Impact on COVID-19 6. Stakeholder and Coordination 3. Regulatory Environment 7. Recommendations • Overview • Licencing Frameworks 8. Annex • Compliance • Complementary Regulation 9. BiBliography PRIM E AFRICA 2 Objectives The Platform for Remittances, Investments and Migrants’ Entrepreneurship (PRIME Africa), is an initiative of the International Fund for Agricultural Development (IFAD), through its Financing Facility for Remittances (FFR), in partnership with the European Union. It aims to address the development opportunities that remittances provide through innovations, partnerships and scalable products that promote more affordable and fast remittances transfers. Prime Africa’s Objectives are: 1) To reduce remittance transfer costs to Uganda in support of the Sustainable Development Goal (SDG 10.c) and the Global Compact for Migration 2) Reduce the use of informal channels to Uganda 3) Enhance financial inclusion through remittance-linked financial services. This Diagnostic provides an assessment of Uganda’s remittance market, especially in light of COVID-19, using a market-oriented approach. It covers a supply side analysis as well as a review of 3 key inbound corridors. The findings and recommendations of this diagnostic study will inform the ‘Roadmap’ for a prioritised approach to interventions leading to the achievement of PRIME Africa goals. It is envisaged that funding will be made available for the public and private sectors for Roadmap implementation. Methodology Data and relevant information for this diagnostic study have been gathered using: 1. Primary Data Collection • Interviews with key stakeholders: regulators, associations, remittance service providers (money transfer operators, banks, mobile network operators, aggregators and fintech start ups offering cross border remittances) • Mystery shopping exercises for data related to service providers, pricing and products 2. Secondary data • Desk-based research -Review of relevant, recent and authoritative sources Data collection was conducted between October and December 2020. Two-virtual National Task Force Meetings are scheduled for Q1/Q2 2021. PRIM E AFRICA 3 Abbreviations AfCFTA African Continental Free Trade Area FSRBs FATF-style regional bodies NPS National Payments System ACH Automatic Clearing House FX Foreign Exchange ODA Overseas Development Assistance AML/CFT Anti-money Laundering / Combating the GDP Gross Domestic Product OTC Over-the-counter Financing of Terrorism G2P Government-to-person PoA Proof of Address API Application Programming Interface GCC Gulf Cooperation Council POS Point of sale BNIs Bearer Negotiable Instruments IB/OB Inbound/Outbound PSPs Payment Service Providers BOU Bank of Uganda IMTOs International Money Transfer Operators P2P Person-to-person CAPI Computer Assisted Personal Interviewing KEPSS Kenya Electronic Payment and Settlement RegTech Regulatory Technology CICO Cash-in cash-out System REPSS Regional Payments and Settlement System COMESA Common Market for the East and Southern KYC Know-Your-Customer RSPs Remittance Service Providers Africa LCTRs Large Cash Transactions Reports ROSCAs Rotational Savings and Credit Associations CSD Central Securities Depository MDIs Micro-finance deposit-taking institutions SACCOs Savings and Credit Cooperatives DMAG DMA Global MENA Middle East and North Africa SDGs Sustainable Development Goals EAs Enumeration Areas MFIs Micro Finance Institutions SFIs Supervised Financial Institutions EAC East African Community MMPs Mobile Money Providers SSA Sub-Saharan Africa EAPS East African Payment System MM Mobile Money STA Settlement Transformative Agenda EFT Electronic Funds Transfer MNOs Mobile Network Operators STRs Suspicious Transactions Reports ESAAMLG East and Southern Africa Anti-Money MoFPED Ministry of Finance, Planning and Economic SupTech Supervisory Technology Laundering Group Development TISS Tanzania Interbank Settlement System FATF Financial Action Task Force MSMEs Micro, Small, and Medium Enterprises UAERA Uganda Association of External Recruitment FCPGs Financial Consumer Protection Guidelines MTOs Money Transfer Operators Agencies FDI Foreign Direct Investment NBFIs Non-Bank Financial Institutions UCC Uganda Communications Commission FDPs Forcibly displaced persons NGOs Non-governmental organisations UCSCU Uganda Cooperative Savings and Credit Union FIA Financial Intelligence Authority NIN National Identification Number UNIS Uganda National Interbank Settlement Fintech Financial Technology NIRA National Identification and Registration VSLAs Village Savings and Loan Associations Forex Foreign exchange Authority FSPs Financial Service Providers NITA National Information Technology Authority PRIM E AFRICA 4 Summary Migration and Remittances • Uganda is a net receiver of immigrants, with over 1.7 million foreign nationals residing in the country in 2019, of whom 1.4 million are forcibly displaced persons (FDPs) mainly from South Sudan and DCR. FDPs are mainly beneficiaries of international remittances (UNDESA, 2019; UNHCR, 2020; Uganda Refugee Response Portal, 2020; GIZ, 2020). • Majority of the Ugandan diaspora (estimated at ~875 thousand in 2019) reside in other East African countries (mainly Kenya and South Sudan), whilst the Middle East is also becoming a key destination for low-skilled labour migrants (UNDESA, 2019; GIZ, 2020). • Uganda is a net receiver of remittances. The Bank of Uganda reported that remittance inflows into Uganda were USD1.2 billion in 2020 which was a reduction of USD200million from 2019 due to the COVID-19 pandemic. Remittances in Uganda account for 4 percent of GDP (2019) (World Bank, 2020; Afrobarometer, 2019). • According to the BoU (2018) nearly a third of remittances came from Europe in 2018, led by the UK, whilst nearly a quarter of annual volumes came from the Middle East led by the UAE. The largest volumes from the European Union come from Sweden and Germany although volumes are estimated to be small (USD13 million and USD8 million). The largest outbound remittance markets are Kenya (USD191 million) and DRC (USD190 million) (World Bank, 2019). • The Bank of Uganda publishes an annual Personal Transfers Survey that sheds more light on the profile of remittance senders and receivers, channels used to send money and use of remittances. Remittances in Uganda are predominantly an urban phenomenon to the Central Region and Kampala. • The impact of the COVID-19 pandemic on remittances into and out of Uganda has not been studied extensively. An initial study suggested that remittance receipts went up, however, data from December 2020 from the BOU showed that remittances fell by USD200 million between December 2020-21. Non-Bank financial providers were significantly impacted as a result of the pandemic • The BoU’s annual remittance volumes are predominantly calculated based on extrapolating results from the annual Personal Transfer Survey. The survey also provides an additional layer of insight into these flows. Financial Environment • The BoU has been upgrading and developing the digital payments ecosystem with the introduction of an ACH in 2018, that facilitates cross border remittance payments and integration into the regional payment system (EAPS). Electricity and ICT infrastructure challenges in rural areas limit digital financial inclusion across the country (multiple sources). • Interoperability between the different payment channels makes it easier for remittance service providers to reach the beneficiaries. Although the payments landscape is largely fragmented, Uganda has achieved interoperability at various levels mostly through bilateral agreements. The BoU acknowledges plans to facilitate improved interoperability (BoU, 2020; AFI, 2018). PRIM E AFRICA 5 Summary Financial Environment cont. • The formal financial sector in Uganda is made up of both banks and a range of different non-bank financial institutions. Each caters to different segments of society and provides tailored financial services. The BoU reports that 71 percent of the population lives within five kilometers of a financial services access point, which for a heavily rural country is good access (BoU, 2017) (multiple sources). • Mobile money, and the blend of formal and semi-formal financial services, have driven up Uganda’s financial inclusion rate to 78 percent, the second highest in East Africa after Kenya (83 percent). This means that opportunities to send and receive remittances through digital channels are high. Men are more likely to use formal services than women, with a 9 percent gender gap (FSD Uganda, 2018; BoU 2020). • Uganda has a well-developed mobile money market, with 7 operators, the two largest players are MTN and Airtel. There are over 17 million active customers in Uganda served through a wide network of agents. However,