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Uganda: Poor Don't Have Access to Finance
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New Vision (Kampala)
12 December 2007
Posted to the web 13 December 2007
Sylvia Juuko
Kampala
UGANDA and Ethiopia have less than one branch per 100,000 people, a huge barrier to access to finance in sub-Saharan Africa, a World Bank report has shown. The bank's policy research report, "Access to Finance," says only one in five people in Africa have access to financial services.
The bank warns that unless there is broader access to finance in low income countries, it may put brakes on development.
"Financial exclusion is likely to act as a brake on development. Theoretical models have shown that financial market frictions can be the critical mechanism for generating poverty traps and slower growth," said Asli Demirguc, the bank's senior research manager.
Demirguc was recently presenting the report which explores the extent of limited access to finance, main obstacles and linkages between access to finance and poverty reduction.
The report shows that 90% of Ugandans cannot afford a cheque account compared to Kenya's 80% and 30% in South Africa.
She said 20% of new investment by small firms was financed externally compared to the 40% by large companies in developing countries.
The report identified physical access, documentation, paperwork, procedures and high interest rates and fees as some the factors that prevented households and small companies from accessing financial services.
Demirguc appealed to governments to build and reform institutions and institute policies that encourage competition and attract financial services.
"Reforms that promote access to financial services should be at the core of the development agenda.
"Governments should also encourage innovation and use new technologies like mobile phones and the internet to deliver financial services," the report adds.
She noted that despite the best efforts, much of micro- finance especially for the poor relies on grants and subsidies.
"Credit subsidies can undermine incentives to introduce access to like expanding innovations."
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Because credit is not the only financial service needed by the poor, she said, subsidies could be better spent on overcoming barriers to savings and payments services.
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