How Kenya’s financial inclusion experience can help ugandans

Monday January 17, 2011

LAST month, the Governor Central Bank of Kenya Prof. Njuguna Ndung’u delivered an insightful lecture on the state of affairs regarding the level of financial inclusion in East Africa.

Quoting a Finscope survey, he pointed out that Uganda had the highest number of unbanked people recorded at 62% out of the total population of 32 million. This compares Kenya’s 32%, Tanzania’s 52% and Rwanda’s 56%.

Prof. Njuguna told participants at the 18th Joseph Mubiru Memorial Lecture organised by the Bank of Uganda that Kenya’s impressive figures were due to concerted efforts to have more people included in the banking sector through rapid expansion of commercial bank branches.

Uganda could learn from Kenya’s efforts at including more people in the financial sector with innovation, increasing bank branches and mobile technology cited as some of the main drivers of this initiative.

These efforts have helped increase Kenya’s commercial bank branches from 534 in 2005 to 1,030 by September 2010. In comparison, Uganda’s branch network increased from 53 branches in 2005, to 381 in September 2010, following the licensing of more banks. Tanzania on the other hand, increased its branch network from 53 branches to 418 in 2009.

Given the current state of affairs, a collaborative effort from the Government, the Central Bank, commercial banks and at the individual level is needed to have more people included.

As Prof. Ndung’u remarked, the level of financial inclusion has a direct impact on the sustainability of poverty reduction efforts.

More importantly, he said consumer protection through adequate information disclosure and financial literacy were also important to include the poor in accessing financial services.

But for this to happen, the Government can give incentives that compel individuals to save and provide infrastructure to drive branch expansion by commercial banks in rural areas. Already, commercial banks that set up branches in the rural areas qualify for tax incentives from the Government.

The Central Bank can champion the need for innovation by commercial banks to take advantage of the technology that can eventually lower the high operation costs.

Banking experts note that as long as customers face high account-opening or maintenance fees, they will continue keeping their money in mattresses instead of taking it to the bank.

On the otherhand, if interest on deposits remains paltry, it wouldn’t make sense to keep the money on a savings account to earn returns that are below the inflation rate.

The disadvantage of citizens keeping their money in mattresses or in market stalls is that banks cannot mobilise cheap savings that they can in turn on-lend at a low cost to drive economic activity.

Another lesson to learn from Kenya is their advanced level of financial awareness and the culture of investment clubs that have been used as a vehicle to mobilise savings for investment.

Nevertheless, the current status quo shouldn’t be used as an excuse to ignore the need to improve our money habits. Since you have no control over when government or banks will make good on their promises, you can do your part by improving your financial intelligence.

It’s advisable to work with what you have through changing the money mindset that allows you to think about money differently.

With a different way of thinking about money, you will recognise the need to multiplying your sources of income. This income can be deployed in the right asset classes to grow your wealth.

Ultimately, personal finances can be handled well if we learn from those who have succeeded at accumulating wealth and apply it to our situation.

By Sylvia Juuko The New Vision Newspaper