13 January 2014

Ugandans Avoid Banks

Kampala — Most individuals and firms are increasingly accessing credit from informal sources, according to the 2013 FINSCOPE survey. One of the reasons cited by the survey for the limited access to credit is the low level of domestic savings which affects ability by institutions to offer long term financing.

The findings of the FinScope III survey report reveal that in rural areas, people use more informal financial service providers like village saving schemes and mobile money (35%) than the formal services like banks (32%).

The FinScope survey shows there was a registered growth in use of non-bank formal service schemes from 7% in 2005 to 34% in 2013 because of the coming on board of the mobile money service. Some 5.1 million adult Ugandans now use mobile money services to send and receive money.

The report notes that 47% of people said they did not use formal banking services because they did not have income to save. Savings therefore with formal banks remained low.

In this regard, the government of Uganda intends to increase gross national savings from the current level of 14.5% to 35% of GDP by 2040 as a means to accelerate structural transformation.

Speaking during the release of the survey results at the Kampala Serena Hotel late last year, Dr. Sarah Sewanyana the Executive Director of the Economic Policy Research Center (EPRC) noted that a large proportion of the population is increasingly saving their money in secret places and in their homes.

Moreover, a significant proportion of those saving in these secret places is based in urban areas and include among others, prominent public figures.

She said, "This is not really surprising because even our politicians who reside in these urban areas are doing the same. Therefore, the Central Bank and the Ministry of Finance need to look into this so as to find ways of encouraging people to save formally."

The report shows that the proportion of those saving in these secret places rose from 18% in 2009 to 25% in 2013 in areas. The fear now is that if nothing is done to encourage formal savings, the figure could rise further.

However, overall, the share of the adult population accessing formal institutions (both banked and non-bank formal) increased by almost twofold from 28% in 2009 to 54% in 2013. The growth was largely driven by an increase in the non-bank formal from 20% in 2009 to 52% in 2013.

"When you sieve that data out, you will find that this is almost entirely driven by the mobile money services. The number of people using informal services also increased from 60% to 74% of the population during the same period. That is in terms of the overall usage," Sewanyana added. Government through their micro finance branch of ministry of finance is encouraging people across the country to form SACCOS and savings groups for women, youth and farmers. Government then extends credit to these groups with a hope that the money will be invested. This among other efforts will help improve financial inclusion.

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