Access to financial services is one of the keys to alleviating poverty and achieving sustainable economic growth in Uganda.

To achieve this, focus should be on the whole range of economic activities, including small and medium-sized enterprises (SMEs) and farmers. SMEs have the ability to create goods, innovations and employment, which can take the economy to a higher level. It is essential that these enterprises have access to financial services fitting their needs, in order to continue and expand.

Therefore, the creation of a system which can provide professional and sustainable access to financial services for all economic activity in the country is key. The financial sector in developing countries such as Uganda consists of three sub-sectors: the formal, semi-formal and informal.

Currently, Uganda has 24 banks, four credit institutions, five microfinance deposit-taking institutions, over 1,900 Saccos, one public pension fund, one social security fund, 60 private retirement benefits schemes and seven mobile money providers.

According to the World Bank, access to financial services enables individuals, households, and businesses to efficiently balance income and expenses over time, to manage shocks, and to invest in the development of their human and physical capital.

Most critically, efficient intermediation encourages savers, eases access to credit for borrowers and lowers the costs of credit which, in turn, reduces the overall transaction costs for enterprises, making them more competitive.

Therefore, a well-functioning financial system encourages the emergence of new businesses, supports the growth of existing businesses, and ensures business sustainability. Similarly, a well-functioning financial system will encourage households to save and to engage in income-generating activities, hence smoothening consumption and accelerating poverty reduction.

The World Bank says successful emerging countries that have achieved rapid, equitable economic growth have been characterized by their ability to develop deep financial systems that effectively mobilize savings and intermediate resources to productive activities.

Uganda’s financial system has emerged in the context of a broader set of market-oriented policy reforms that involved liberalization of the financial sector in the 1990s.

These reforms were aimed at improving efficiency and enabling the emergence of institutions to provide a broader range of financial services to a broader proportion of the population.

In terms of inclusion, the World Bank explains that the development of non-bank deposit-taking financial institutions, such as credit institutions and microfinance deposit-taking institutions, has been significant, because these institutions generally have a wider geographical scope and are more orientated to serving low-income clients.

However, the greatest impact on access to financial services has been through mobile money, which was introduced in March 2009.

The World Bank’s eighth edition on Uganda’s economic update released this month shows that slightly more than half (52 per cent) of Uganda’s adult population has access to an account at a formal financial institution that enables them to engage in at least a limited range of transactions.

The World Bank says this is a significant increase from the figure of 28 per cent recorded in 2009, with most of the improvement coming from an increase in the use of mobile money services.

Thus, a large proportion of households, SMEs, and agricultural producers still have only limited access to credit, savings, payment, and insurance products from the formal financial system.

Almost half of those people who hold accounts with formal financial institutions do so with a bank, with 28 per cent of the adult population holding such an account. 

While this is a significant increase from the figure of 21 per cent recorded in 2011, it shows that a large proportion of the population is still left out of the banking system, leaving Uganda behind many regional and global peers.

With more than seven million active users in 2016, the financial service most used by Ugandans was mobile money, with the increase resulting from the widespread embrace of new technologies by consumers, who have been attracted by the potential of this service to effect financial transactions easily.

However, the World Bank says despite the increase in the level of access to financial services, only a very small proportion of Ugandan businesses and households have access to a bank loan and/or a line of credit.

The author is a Ugandan journalist.