Digital financial services extend credit to unbanked Ugandans

Slightly over one in every three Ugandans have a bank account, with a reported 16.5 million Ugandans still using traditional saving methods such as physical cash, livestock and agriculture.

With only 16 million bank accounts in the country, over half of the population has no access to savings or credit through financial institutions, as drivers of capital investment and, ultimately a higher rate of economic growth.

Digital financial services, however, are playing a pivotal role in plugging this divide as various institutions are partnering to enhance access to financial services for the unbanked.

Take for instance the MoKash platform in which customers of Ugandan mobile telecommunications company MTN can save from as low as Shs50 and borrow amounts from Shs3000 to Shs1 million. NCBA Bank in partnership with MTN issued over 4.7 Million loans worth UShs 435 Billion in 2020 alone.  

Stephen Mutana, MTN Uganda’s general manager for mobile Financial services notes that “The system has recorded a high uptake for credit as it allows for structured payments within a period of thirty days.”

Over 2.5 Million customers have saved nearly UShs 16 Billion on the platform. 

Instant access to credit

Clare Muhindo, a resident of Kira Municipality in Wakiso testifies to the quick credit relief afforded by the facility which she has used since 2016.

“It always comes in handy when I am not able to access cash, day or night and I pay back as soon as I can. My loan limit keeps growing because of my good pay back culture,” she says.

On an online platform, another user John Wakhata noted that he no longer relies on people for financial relief but instead utilizes mobile credit.

COVID-19 financial relief

As multiple individuals and businesses experienced a hemorrhage in revenue streams during COVID-19, financial service providers in Uganda offered reprieve to their borrowers on mobile money platforms.

On the MTN Mokash platform, loan repayments were deferred by 30 days and deferments maintained over the course of the year.

Penalties for late loan payments were also deferred by 30 days. 

“Due to the changing financial landscape during COVID-19, MTN engaged its partner NCBA to further ease not only access to quick finance but also easy repayment for our customers,” the MTN Uganda General Manager for financial services reveals.

A working paper by George Wilson Ssonko and Duncan Roy Kawooya from Bank of Uganda notes that digital financial services have numerous benefits which can expand the delivery of financial services to the bottom of the pyramid clients through innovative technologies like mobile phone-enabled solutions, electronic money models, and digital payment platforms. 

“Some of the benefits include cost reduction and lower surcharges on

 account of maximizing economies of scale; enhanced accessibility / outreach; increased efficiency; better quality service; increased speed, security, and transparency of transactions; potential for product customization; as well as convenience,” the work paper reveals.

Increased phone ownership deepening financial inclusion.

A big enabler for digital Financial inclusion is access to mobile phones. By June last year, 39 people out of every 100 Ugandans had no access to a communication line signaling to low mobile penetration in the country.

Uganda has one of the least number of people with access to a mobile phone compared to her East African counterparts.

Experts peg the low penetration to the high cost of access to mobile devices which according to Jumia Uganda, averages around Shs350,000 for smartphones.

Mr Micheal Niyitegeka, ICDL Africa country manager for Uganda says purchasing and maintaining a smartphone is still a hindrance in the country.

 “The cost of access is still expensive; both to own a device and manage or maintain it. Irrespective of the services such as data or voice bundles, the cost of accessing the device is still high especially for those that are not in the productive economy,” he says.

He further refers to the nature of the country’s population characterized by a high number of people who are yet to become productive such as the school going children and unemployed youth meaning they cannot afford a handset.

However, by September, the number of Ugandans without access to a phone had gone down to 36 out of every 100 Ugandans partly because one million new devices were connected to the network.

The connectivity, according to the sector regulator was powered by mobile network operator (MNO) and device importer partnerships.

“The growth in network connected devices yet again remains driven by MNO-device importer partnerships in Uganda. The growth in network connected devices is in sync with global gadget shipments by the major vendors in the months July-September 2020,” the regulator explains.

Partnerships drive mobile penetration.

The success of MNO-device importer partnerships is premised on the low-cost devices supplied by the parties.

Telecom giant MTN Uganda partnered with Chinese manufacturer Techno to launch numerous phones that have driven connectivity, communication, and financial inclusion.

To address the element of affordability, the telecom company went even further to launch the Kamunye feature phone with vast internet abilities priced at only Shs69,000.

Aware of the strain in making lump sum payments for smartphones, MTN ushered device financing into the country.

The device financing scheme was piloted through an MTN branded phone that was called Kabode. The pilot went very well pointing to the need in the community that MTN is now covering.

Just recently, the telecom company rolled out a new campaign in partnership with solar company MKopa Solar. In the partnership, MTN Uganda is rolling out mid-range Samsung phones that are the envy of many. For as low as shs51, 000 per month or shs2300 per day, anybody can now get these very high-end Samsung devices and connect to the world.

Through the company’s installment payment plan introduced last year, more people are expected to own phones.

Currently, there are currently 6.96 million smartphones and 17million feature phones in the country.

Ms Yolanda Cuba, Mtn group vice president for Southern and Eastern Mtn markets says the telecom is dedicating focus to increasing accessibility of devices in the country.

“Mobile penetration is below 70 per cent and in other countries it is over 100 percent. There is need to look into how we can get the penetration to over 100 per cent to ensure more people are connected.  On the data front, there is a lot of potential because it is around 30 per cent.  There is evidence that more people are using our services, however there are not so many data enabled devices and that is where we are going to focus. How do we enable people have access to this infrastructure?” she noted.

Historic journey

MTN is not new to the journey of affordable devices as the telecom pioneered one of the cheapest phones that anchored the trek of price drops over the years.

The telecom in 1998 launched the Ericson phone at about Shs40,000 at a time when mobile penetration which is currently at 64% was only at 0.27%.

Telecoms like MTN are today further emphasizing deeper mobile penetration because of the transformation of a handset beyond enabling communication to include financial services.

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