Harmonising financial inclusion across all sectors of Ugandan economy

Uganda has been praised as a leader in financial innovation in Africa, especially with the rapid uptake of mobile money and agency banking. Yet, despite a notable increase in access to financial services—from just 28% in 2009 to over 66% in 2022—the concept of financial inclusion remains unevenly distributed across the economy. In sectors like agriculture and the informal economy, a majority of citizens still struggle to access meaningful credit, insurance, savings tools, and pensions.

Harmonising financial inclusion means ensuring that all economic sectors—not just urban traders or salaried workers—benefit from inclusive financial ecosystems. It also entails creating sector-specific policies that reflect the diversity of financial needs in Uganda’s multifaceted economy.

Financial inclusion is no longer just a banking issue. It’s a development strategy that must be embedded in education, agriculture, industrialisation, ICT, health, and social protection. This article discusses sector-specific challenges, showcases best practices, and proposes a harmonised strategy that can unlock Uganda’s inclusive growth.

Sectoral realities: Where gaps persist

a) Agriculture: Backbone with a broken link

Agriculture contributes over 23% to Uganda’s GDP and employs more than 70% of the population. Yet it is the least financially served sector. Most farmers lack access to formal credit due to lack of collateral, irregular incomes, and high-risk perception by financial institutions. Micro-insurance and mobile-based agro-finance tools remain limited. Credit facilities are often urban-focused and short-term, incompatible with farming cycles.

SACCOs and cooperatives have helped bridge this gap, but they face challenges like poor governance, limited capital, and a lack of digital integration. To harmonise inclusion in agriculture, Uganda needs more blended finance schemes, government-backed risk guarantees, and tailored insurance products. Bundling savings, loans, and information into digital platforms accessible even on basic phones can accelerate adoption.

b) Industry and SMEs: Locked out of capital

Uganda’s industrial sector, dominated by micro and small enterprises, faces a critical financing gap. Only a fraction of SMEs have formal financial relationships with banks. Most rely on personal savings or informal lenders, which stifles growth and innovation.

High interest rates, rigid collateral demands, and a lack of credit information limit SME access to affordable financing.

Government-backed credit facilities like the Agricultural Credit Facility (ACF) and the Small Business Recovery Fund have potential but remain underutilised due to bureaucracy and limited awareness. A harmonised approach requires strengthening financial literacy, digitising business records, promoting SME credit bureaus, and expanding flexible credit instruments such as invoice discounting and factoring.

c) Services Sector: Opportunity amidst informality

The services sector—ranging from transport and education to hospitality and retail—is Uganda’s fastest-growing sector. With increased mobile penetration, many service providers now use mobile wallets and digital platforms for transactions. Yet financial inclusion in this sector is fragmented.

Teachers in private schools, Boda-Boda riders, health workers in private clinics, and informal traders often operate outside pension schemes, credit systems, or health insurance. Informality remains the main barrier, compounded by limited digital and financial literacy. Harmonisation here means strengthening platforms like NSSF’s voluntary savings scheme, digitising informal payments, and integrating gig workers into financial ecosystems through tailored mobile banking services.

d) Informal Economy: The invisible majority

More than 60% of Uganda’s workforce is in the informal economy. Yet many remain financially excluded due to lack of identification, credit history, and formal registration. Group lending through VSLA and SACCO models offers partial inclusion, but without integration into broader financial infrastructure, such inclusion remains superficial.

Digital IDs (e.g., the National Identification Number system) can help bridge this gap by linking informal workers to formal financial systems. A harmonised financial inclusion approach must bring the informal sector into the fold through progressive formalisation, tax incentives, and digital integration—without penalising the poor.

Systemic barriers to harmonisation

a) The digital divide

Despite impressive mobile money penetration, digital gaps persist between urban and rural regions, men and women, and the young and the elderly. Many rural populations lack smartphones or internet access. Agent networks, though growing, remain thin in remote areas. Bridging this divide requires investment in digital infrastructure, solar-powered financial kiosks, and USSD-based services that work even on feature phones.

b) Financial literacy and mistrust

Many Ugandans, particularly women and youth, fear formal banking systems due to past experiences of fraud or complexity. Financial education campaigns are sporadic, donor-driven, and rarely tailored to community needs. Harmonised financial literacy requires integration into school curricula, radio programmes, and local government outreach, using local languages and culturally relevant models.

c) Gender and youth exclusion

Women in Uganda face disproportionate challenges: limited asset ownership, mobility restrictions, and digital illiteracy. Youth often lack credit history or stable income to access financial services. Harmonisation demands deliberate gender-sensitive products (e.g., women’s savings groups with bank matching schemes) and youth-targeted credit products linked to skills training or agribusiness ventures.

d) Regulatory fragmentation

The multiplicity of regulators—BoU, URSB, IRA, NITA-U, and MoFPED—leads to overlap and inefficiencies. For example, SACCOs and mobile money operators operate under different regulatory umbrellas with inconsistent consumer protection standards. A unified regulatory framework with a single oversight body or coordinated council on financial inclusion can streamline efforts and enforce sector-wide standards.

Innovation and inclusion: Models that work

Uganda’s financial ecosystem offers several promising models that can be scaled:

• MoKash and Airtel Wewole: These mobile credit and savings products allow users to borrow and save without visiting a bank. With AI-powered credit scoring, they serve millions, including the unbanked.
• aBi Finance’s Agri-Finance Model: By combining capacity building, financial access, and market linkage, aBi has improved access to finance for rural farmers.
• Agent Banking Model by Equity Bank and Centenary Bank: This has expanded access to financial services without the need for new physical branches. It particularly benefits rural communities.
• UNCDF and Refugee Financial Access Programmes: These integrate refugees and host communities into savings and credit systems, with digital wallets and support from humanitarian agencies.

Scaling such models requires government investment in public infrastructure and fintech partnerships, especially in underserved regions.

Policy pathways toward harmonisation

Harmonising financial inclusion across sectors demands deliberate policy reforms:

1. Update the National Financial Inclusion Strategy (NFIS): Incorporate sectoral targets and integrate digital finance, SME financing, and gender-responsive services.
2. Establish a Financial Inclusion Council: Coordinate stakeholders across ministries, regulators, banks, fintechs, and civil society to track progress and harmonise initiatives.
3. Incentivise Innovation: Provide tax breaks, grants, and regulatory sandboxes for fintech firms and SACCOs that deliver inclusive services.
4. Sectoral Integration: Mainstream financial inclusion into agriculture, education, trade, and health policies. For instance, require schools to adopt digital payment systems or mandate savings products in agribusiness projects.
5. Pension and Insurance Inclusion: Develop micro-pension and community health insurance schemes accessible via mobile phones, targeting workers in the informal and service sectors.
6. Public-Private Partnerships: Leverage telecom companies, cooperatives, and fintech startups to expand reach and affordability.

 
Conclusion

A Shared Vision for Inclusive Prosperity

Financial inclusion is not a standalone sectoral goal; it is a linchpin for Uganda’s long-term social and economic development. By harmonising the provision, access, and regulation of financial services across agriculture, industry, services, and the informal economy, Uganda can unlock its demographic dividend and move millions out of poverty. The challenge is not a lack of tools but a lack of coordination.

A harmonised, inclusive financial system will require collaboration across the government, private sector, development partners, and communities. Financial literacy must be widespread. Products must be tailored, inclusive, and affordable. Infrastructure must be accessible, even in the remotest corners. Uganda stands at a pivotal moment. By creating a financial system that serves every citizen—farmer, trader, youth, refugee, teacher, or factory worker—the nation can build a more equitable, resilient, and prosperous future.

The writer is a lecturer at the Faculty of Business and Management (FBM), International University of East Africa (IUEA), PhD Fellow at Uganda Martyrs University, Kampala (UMU). Policy, Strategy & Institutional Development (SID) Consultant, Foundation Leads Limited (FLL)-Kampala, Uganda