Making financial inclusion work for the unbanked, poor and remote populations in Uganda

By Esiolo Peter, Microfinance Officer, KRC Uganda. Francis Musinguzi, Information, Research and Communications, KRC Uganda.

Financial inclusion refers to the delivery of financial services at affordable costs to disadvantaged and low-income segments of society[1]. The concept of financial inclusion was first introduced in India in 2005 by the Reserve Bank of India. Ever since, the concept has been embraced by governments, financial institutions and development organisations, as a tool to bring affordable financial services to the poor.

The trend of financial inclusion in Uganda shows that progress has been a long and ever-evolving journey to connect as many people to basic financial services. Since 2001, the government has taken steps to increase the number of adults accessing formal financial services from 58% in 2018 to 80% by 2022 (Fin Scope survey 2018). However, 2.6 million adults remain excluded (15% of the adult population) and usage of insurance products in particular remains low, with only 2% of the adult population reporting use of them.

The Government of Uganda has developed a number of policy and regulatory instruments to promote financial inclusion through microfinance, insurance and mobile money to facilitate responsible and sustainable transactions, payments, savings, credit and insurance products, all delivered in a responsible and sustainable way.

However, there continues to exist a huge financial inclusion gap in terms of the suitability of products and services design by the formal financial service providers to meet the needs of the low-income earners who are usually smallholder farmers in the rural and peri-urban and small business operators.

One glaring bottleneck to financial inclusion in Uganda is a weak regulatory framework for the growth of rural finance systems. The Tier-4 Microfinance Institutions Act and Money Lenders Act, 2016, for instance, is silent on the regulation of self-help groups such as Village Savings Associations (VSLAs) and Rotating Savings and Credit Associations (ROSCAs). On many occasions, members of VSLAs have been fleeced of their meagre savings through unscrupulous management of these un-supervised financial associations. In addition, the financial services provided by these groups are largely informal and limited in terms of the credit portfolio needed to meet the credit demand by the members. As such, the drive to deepen financial inclusion continues to lag.

Nonetheless, there is a renewed drive from the civil society actors and development organisations who are driving financial inclusion for the poor and vulnerable. Between 2020 to 2022, KRC Uganda partnered with Care International, Broederlijk Delen, Goal Uganda, Hivos and SOS Faim to build capacity and facilitated formation of over 247 VSLAs in the Rwenzori and Bunyoro sub regions to mobilise local finance and bring financial services to the poor and vulnerable. KRC also facilitates linkages of these groups to formal finance institutions to access financial services, including savings, financial literacy among others. In order to propel this progress forward, they following need to be taken into consideration.

  1. Assuring savers of the safety of their member-savings

The lack of such assurance can be a great source of suffering to savers whenever there is collapse of any service provider. This is mostly pronounced among the many semi-formal and informal service providers like SACCOs and Community Groups. Prudential regulation and other safety nets for service providers should always be in place to reduce on this risk. In that way, the country will be able to attract more savers into formal institutions.

  • Reducing lending risk and risk perceptions inherent in lending to key productive sectors particularly Agriculture and SMEs.

While agriculture forms the backbone of the Ugandan economy and provides employment to the majority of Ugandans, there is little evidence that credit is churned into this sector in adequate proportions. Exclusion of agriculture in lending is indeed exclusion of many people from the financial sector. It is therefore crucial that service providers design financial products suited for the agricultural sector, such as reasonable priced credit facilities and agriculture insurance. Innovation allows financial products and services to be customized to those who need it and it is crucial for creating a diversity of solutions to financial inclusion.

  • Expanding outreach through technological advancement

Where financial exclusion is exacerbated by structural challenges such as remoteness and poor road network, the cost of financial services is enormous. It is also expensive for savers who travel long distances to go and deposit small savings in their accounts. The cost of credit administration and borrowing becomes very prohibitive in such situations.

It is therefore important to explore the use of agents and the new technology such as mobile phone banking and points of sale as tools for financial inclusion. Harnessing the advantages that new technology offers may reduce the cost of opening outlets especially in hard-to-bank areas that may initially not be profitable for financial service providers. Technology will continue to offer low-cost solutions and opportunities that were never thought about in the past.

  • Promoting alternative banking methodologies

Methodologies such as group lending in microfinance and Islamic Banking & Finance which use collateral substitutes and other risk-sharing mechanisms that are not used by conventional bankers provide viable alternatives that should be critically assessed. This opportunity should be supported by a flexible (different laws and regulations for different sectors) and strong regulatory and supervisory framework that guarantees safety and soundness of institutions. Innovative financial inclusion works better when a strong legitimate framework balances International Standards and national conditions.

  • Financial literacy and the improved financial capability within the majority of the population

One of the issues limiting financial inclusion is paucity of information provided to clients and the lack of a good understanding or interpretation of that information. We need a national framework to address financial literacy and financial consumer protection. This framework should assign roles to different stakeholders within the financial sector plus providing for coordination among financial service regulators. Financial actors should design and enhance twinning and financing arrangements with the Ministry of Education and Sports, the National Curriculum Development Centre and financial service providers to roll out a Financial Literacy and Financial Consumer Protection program to schools, colleges and universities.

The government should streamline the regulation of self-help groups who form a large part of the rural finance system in order to protect vulnerable people from abuse.


  1. FSD Uganda, 2018. Topline Findings Report June 2018. Kampala
  2. Finca UK, 2021. What is Financial Inclusion?
  3. Parliament of Uganda. 2016. Act 18 Tier 4 Microfinance Institutions and Money Lenders Act 2016 THE TIER 4 MICROFINANCE INSTITUTIONS ACT AND MONEY LENDERS ACT, 2016


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