Digital financial services give credit to unbanked Ugandans

Just over one in three Ugandans have a bank account, with 16.5 million Ugandans still using traditional savings methods such as cash, herding and farming.

With only 16 million bank accounts in the country, more than half of the population does not have access to savings or credit through financial institutions, as engines of capital investment and, ultimately, account for a higher rate of economic growth.

Digital financial services, however, play a central role in bridging this divide, as various institutions team up to improve access to financial services for the unbanked. Take for example the MoKash platform where MTN clients can save from UGX 50 and borrow amounts ranging from UGX 3,000 to UGX 1 million. NCBA Bank, in partnership with MTN, issued more than 4.7 million loans worth UGX 35 billion in 2020 alone.

Stephen Mutana, managing director of mobile financial services at MTN Uganda, notes that “the system has seen a high use of credit as it allows structured payments over a period of thirty days”. Adding that over 2.5 million customers have saved nearly 16 billion UGX on the platform.

Instant access to credit
Clare Muhindo, a resident of Kira Municipality in Wakiso, testifies to the rapid credit relief offered by the facility she has been using since 2016.

“It’s always handy when I don’t have access to cash, day or night, and I reimburse as soon as possible. My loan limit keeps increasing because of my good repayment culture, ”she says.

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

Financial assistance related to Covid-19
As several individuals and businesses hemorrhaged income streams during Covid-19, financial service providers in Uganda have offered reprieve to their borrowers on mobile money platforms. On the MTN Mokash platform, loan repayments were deferred for 30 days and postponements were maintained throughout the year. The penalties for late payment of loans have also been deferred by 30 days.

“Due to the changing financial landscape during Covid-19, MTN has engaged its partner NCBA to further facilitate not only access to quick financing but also easy repayment for our customers,” reveals Stephen Mutana.

A working paper by George Wilson Ssonko and Duncan Roy Kawooya of the Bank of Uganda notes that digital financial services have many benefits that can extend the provision of financial services to bottom-of-the-pyramid clients through innovative technologies such as mobile phone solutions, electronic money models and digital payment platforms.

“Some of the benefits include lower costs and lower surcharges due to maximized economies of scale; improved accessibility / awareness; Increased efficiency; better service; increased speed, security and transparency of transactions; potential for product customization; as well as convenience, ”reveals the discussion paper.

Increased phone ownership Deepening financial inclusion.
Access to mobile phones is one of the main catalysts for digital financial inclusion. As of June last year, 39 out of 100 Ugandans did not have access to a communication line reporting low mobile penetration in the country. Uganda has one of the smallest numbers of people with access to a cell phone compared to its counterparts in East Africa.

Experts associate low penetration with the high cost of accessing mobile devices which Jumia Uganda says averages UGX 350,000 for smartphones.

Micheal Niyitegeka, ICDL Africa Country Manager for Uganda, says purchasing and maintaining a smartphone is still a hurdle in the country.

“The cost of access is still expensive; both to own a device and to manage or maintain it. Regardless of the services such as data or voice plans, the cost of accessing the device remains high, especially for those outside the productive economy, ”explains Niyitegeka.

Niyitegeka also refers to the nature of the country’s population characterized by a high number of people who are not yet productive, such as schoolchildren and unemployed youth, meaning they cannot afford a handset. .

However, by September 2020, the number of Ugandans without access to a phone had fallen to 36 out of 100 Ugandans, in part because a million new devices were connected to the network. Connectivity, according to the industry regulator, has been fueled by mobile network operator (MNO) and device importer partnerships.

“Grid-connected device growth is once again driven by MNO-device importer partnerships in Uganda. The growth of devices connected to the network is synchronized with global shipments of gadgets by the main suppliers during the months of July to September 2020, ”explains the regulator.

Partnerships drive mobile penetration.
The success of MNO-device importer partnerships relies on the low cost devices provided by the parties. MTN Uganda has partnered with Chinese smartphone maker TECNO to launch numerous phones that have promoted connectivity, communication and financial inclusion.

To address the element of affordability, the phone company took it a step further by launching the Kamunye feature phone with vast internet capabilities at a price of just UGX 69,000.

Realizing the difficulty in making lump sum payments for smartphones, MTN introduced a device finance program; ‘Pay Mpolampola’ which allows its customers to obtain smartphones and pay in installments over a specified period. The program was operated via an MTN branded phone called MTN Kabode; an entry-level smartphone that customers can purchase as part of the program. The pilot went very well, highlighting the community need that MTN is now covering.

Recently, the phone company also launched a new campaign in partnership with MKopa Solar to roll out mid-range Samsung phones. For as little as UGX 51,000 per month or UGX 2,300 per day, anyone can now get these very high-end Samsung devices and connect to the world.

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

There are currently 6.96 million smartphones and 17 million multifunction phones in the country.

Yolanda Cuba, MTN Group’s vice president for MTN Southern and Eastern Africa markets, said MTN is focused on improving the accessibility of devices in the country.

“Mobile penetration is below 70% and in other countries it is above 100%. It is necessary to consider how to achieve a penetration rate above 100 percent to ensure that more people are connected, ”Cuba said.

Cuba also noted that on the data front there is a lot of potential as it is around 30 percent. “It’s been proven that more people are using our services, but there aren’t that many data-enabled devices and that’s what we’re going to focus on. How do we allow people to have access to this infrastructure? She noted.

Historical journey
MTN is not new to the affordable device journey, as telecommunications pioneered one of the cheaper phones that have anchored the journey of price cuts over the years.

Telecommunications in 1998 launched the Ericson phone at around UGX 40,000 at a time when mobile penetration, which is currently 64%, was only 0.27%.

Telecoms like MTN are now placing more emphasis on deeper mobile penetration due to the transformation of a handset beyond communication to include financial services.


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