Uganda’s Financial Inclusion Journey – Progress, Pitfalls, and the Green Finance Frontier

Uganda has made significant strides in financial inclusion, as evidenced by the increasing adoption of mobile money and Saccos.

The first National Financial Inclusion Strategy (NFIS (2017-2022), spearheaded by the ministry of Finance, Planning and Economic Development (MoFPED) and the Bank of Uganda (BoU), laid the foundation for this progress, by focusing on reducing financial exclusion, developing credit infrastructure, building digital infrastructure, deepening savings and insurance usage, and enhancing financial capability.

The subsequent NFIS (2023-2028) expanded upon these objectives by introducing green finance and gender inclusion as priorities to address outstanding issues from the NFIS (2017-2022). This aligns with the Bank of Uganda’s ESG sustainability initiative, marking a comprehensive approach to financial development.

The FinScope surveys of 2018 and 2023 provide valuable insights into progress in as far as the increase in financial access is concerned driven by mobile money and Savings and Credit Cooperative Organizations (Saccos). Between 2018 and 2023, there was a remarkable surge in the adoption of mobile money and Saccos.

Mobile money usage increased from 23 per cent to 42 per cent, while Sacco membership rose from 5 per cent to 15 per cent. The increase in mobile phone ownership, from 52 per cent to 72 per cent, has been a catalyst for reducing financial exclusion, primarily through the widespread adoption of mobile money services, especially among the underserved population.

Government initiatives supporting Saccos, especially through the Parish Development Model and other similar programs have also contributed significantly to expanding financial access, particularly in rural areas. However, challenges persist related to the usage of financial services to address unexpected shocks and to support green growth and climate adaptation.

According to the 2023 FinScope survey, unexpected expenses increased significantly, with sickness (28 per cent), agricultural risks (22 per cent), and theft (21 per cent), being the primary causes of financial shocks. This has led to a growing reliance on personal savings as a coping mechanism, with savings usage increasing from 16 per cent to 38 per cent.

Conversely, borrowing as a coping mechanism fell from 42 per cent to 16 per cent. The decline in borrowing suggests a potential gap in financial products tailored to manage these risks. Further, while 38 per cent of Ugandan adults engage in agriculture/agribusiness, a sector with immense potential for green finance, only 22 per cent have accessed such financing. Low awareness about green growth, climate change adaptation, and green finance itself largely accounts for this gap.

Only 28 per cent of Ugandan adults are aware of “green growth,” and fewer still understand climate change mitigation and biodiversity conservation. Moreover, only 11 per cent have knowledge of green finance. Ugandans cite poverty as the primary obstacle to accessing green finance, emphasizing the need for increased resources and awareness to bolster green growth efforts.

To address these usage challenges, financial institutions should prioritize the development of products that enhance resilience for the financially vulnerable. In addition, to fully harness the potential of agriculture and other sectors for green growth, there is a need for concerted efforts to raise awareness about climate change, green finance, and the opportunities they present.

The Bank of Uganda’s requirement for commercial banks to integrate ESG sustainability objectives into their operations is a step in the right direction. By leveraging the insights from the FinScope survey, banks can tailor their products and services to meet the specific needs of their customers.

For instance, developing insurance products to cover health, agricultural, and theft-related risks, as well as savings products that offer positive returns adjusted for inflation and liquidity, can significantly contribute to building financial resilience. Banks can also play a crucial role in driving the transition to a green economy by offering specialized financial products and services.

Key strategies could include product innovation involving the development of green loans, investment funds, and bonds to support environmentally friendly projects; financial education to raise customer awareness about green finance and its benefits; and partnerships with government, NGOs, and other financial institutions to create a supportive ecosystem.

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While there is still room for improvement, the progress made in financial inclusion is commendable. By building upon existing achievements and addressing emerging challenges, Uganda can create a more inclusive and resilient financial ecosystem.

The writer is the director communications and public relations at the Bank of Uganda

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