MM4P MOBILE MONEY Digital in - Briefing Note 1 FOR THE POOR

Digital Financial Services in Uganda

2014 Uganda Facts and figures*

Sector overview 37.6 million Uganda’s digital financial services (DFS) Meanwhile, as demand for DFS grows, Total population market is led by mobile network operators so do the risks for consumers. Instances (MNOs), with the main operators—MTN of fraud in Uganda have put a damper and Airtel—managing the vast majority on early efforts and successes. The Bank of users and transactions. Uganda is of Uganda has developed a consumer considered to be one of the markets with protection policy and has required DFS 28% (incl. 20% through banks) the potential to scale up DFS initiatives. providers to comply with it. Finally, Financial inclusion rate Banks, MNOs and aggregators have the DFS platform is still generally used entered into strategic partnerships as a payment tool (cash-in/cash-out, to remain competitive. Most of these utility and bill payments), rather than a partnerships are bilateral relationships multipurpose channel. Eighty percent of that create inefficiencies and risks in the the population depends on agriculture USD 1,410 payments systems. The payments systems for a livelihood, creating specific GDP per capita (PPP) are highly fragmented, but partnerships challenges and needs that providers with organizations such as Interswitch need to recognize and address. can enhance interoperability initiatives. 52% Mobile phone penetration Key findings

Policy and regulation Check out our website MM4P MOBILE MONEY www.uncdf.org/mm4p FOR THE POOR DFS are offered by MNOs that are regulated clients’ funds in escrow accounts. Banks and by the Uganda Communications Commission. other financial institutions are not allowed to A comprehensive regulatory framework for provide DFS under the current Banking Act @UNCDFMM4P DFS has not yet been developed in Uganda; (2000) unless they partner with a DFS provider. however, DFS providers are required by However, is supportive of LinkedIn group Bank of Uganda to partner with ‘licensed’ agency banking (agent recruitment and MOBILE MONEY FOR THE POOR institutions in order to offer DFS and hold DFS management by financial institutions).

*Source: EIB and UNCDF, ‘Digital Financial Services in Africa,’ December 2014. Digital Financial Services in Uganda - Briefing Note 1

Delivery infrastructure High volume Key stakeholders Uganda has made significant progress on High person-to-person (P2P) fees make the Regulators its infrastructure agenda in recent years. cost of sending small payments prohibitive. Successful information and communications However, a high-level analysis of DFS • Uganda Communications Commission technology reforms led to an expansion in transaction data suggests that m-wallets • Bank of Uganda mobile coverage and market penetration. are used primarily for P2P payments and the Power sector reform has also paved the beneficiaries immediately withdraw funds way for improvements in power generation from their accounts. The lack of merchants capacity, which in 2010 was at 305 MW— accepting DFS as a form of payment limits short of 440 MW peak demand. In spite of the the value that DFS has in people’s daily lives. improvements, an infrastructure gap remains; There are initiatives underway by companies Main banks the country currently spends about EUR 802 like PesaPal, a merchant acquirer and solution million on infrastructure projects (11 percent provider, to help merchants allow customers • Stanbic Bank of GDP) and requires a further EUR 1.1 billion to make digital payments for everyday goods • Standard Chartered Bank be spent per year over the next decade to and services. Uganda is a largely cash-driven • address its infrastructure deficit. economy; most Ugandans still prefer to use • Crane Bank cash and cheques for transactions, accounting • Barclays Providers for about 85 percent of all payments.

The Ugandan DFS industry utilizes the Customers Mobile network operators operator-centric business model, in which MNOs are the dominant stakeholders. There In general, poor financial institution has also been an increase of non-MNO penetration—including poor distribution Market share payment solution providers or aggregators channels (customer touch points) for financial Orange 5% that have developed technology platforms services—accounts for the low percentage of to support DFS; they partner with MNOs, banked population. Only a quarter of the 8.3 14% financial institutions and donor partners to million unique prepaid SIM subscribers in the Airtel 37% offer information services and DFS. Since market are active DFS users (approximately 44% banks have a limited role in the DFS ecosystem, 2.3 million as of 2012). An InterMedia study MTN there is no strong business case for them to shows that households with registered DFS serve the low-income segment. The operator- users are more likely than other types of Digital financial service providers centric business model limits interoperability households to engage in a greater number as banks are locked out of the market. of financial activities, including sending and • MTN Mobile Money receiving remittances, making and receiving • Uganda Telecom Agent networks payments, and saving money. Therefore, DFS • Airtel Money may strengthen the savings culture in the • Orange Money The key challenges facing agent networks population. include an ambiguous agent selection process by providers, weak agent training, and inconsistent agent management. Poor liquidity For more information, contact management coupled with low penetration of François Coupienne agents in rural areas account for serious gaps UNCDF-MM4P Technical Advisor at within agent networks. Branch penetration in [email protected]. rural areas is very low, and as banks cannot operate DFS, their operations are limited to serving people in urban areas. Penetration of MFIs and credit institutions is poor with about These highlights are brought to you by 99 and 42 outlets, respectively, in rural areas. MM4P in partnership with EIB. It should be noted that savings and credit co- operatives (SACCOS), which have about 880 outlets in Uganda, and village savings and loans association (VSLAs), which have about 1 million registered members, have a much stronger network to reach rural segments.

December 2014. Copyright © UN Capital Development Fund. All rights reserved. The views expressed in this publication are those of the author(s) and do not necessarily represent those of the United Nations, including UNCDF, or their Member States.