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> Posted by Jeffrey Riecke, Communications Specialist, CFI
If you had to embark on a journey similar to that of the 65 million people who are currently forcibly displaced, what would you bring? Most likely among your provisions would be a smartphone. Phones are the contemporary map and compass, a gateway to critical information, a means for keeping in touch with loved ones, and a financial toolkit. More and more, aid workers are witnessing refugees arriving at camps with smartphones. For both the refugee journey and the post-journey settlement process, a phone can be vital. With this in mind, you might not be surprised to learn that mobile money usage among refugees, including for cash transfers from governments and NGOs, is on the rise.
> Posted by Center Staff
A schoolboy looks at an electric light bulb powered by M-KOPA solar technology, as it illuminates his home in Ndela village, Machakos, Kenya.
2016 was the hottest year on Earth since records began in 1880. For those of us who work in financial inclusion but are fearful about our lack of progress in combating climate change, the following is a spot of good news: at the recent World Economic Forum Annual Meeting in Davos, Ant Financial and the United Nations Environment Program launched the Green Digital Finance Alliance.
> Posted by Mark Napier, Director, FSD Africa
The following post was originally published on the FSD Africa blog.
Yesterday, Zambia’s central bank announced it had taken over a commercial bank, Intermarket, after the latter failed to come up with the capital it needed to satisfy new minimum capital requirements. Three weeks ago, a Mozambican bank – Nosso Banco – had its licence cancelled, less than two months after another Mozambican bank, Moza Banco, was placed under emergency administration.
At the end of October, the Bank of Tanzania stepped in to replace the management at Twiga Bancorp, a government-owned financial institution which was reported to have negative capital of TSh21 billion. A week before that, just over the border in Uganda, Crane Bank, with its estimated 500,000 customers, was taken over by the central bank, having become “seriously undercapitalised”. In DR Congo, the long-running saga of BIAC, the country’s third-largest bank, continued in 2016, forced to limit cash withdrawals after the termination of a credit line from the central bank. And in Kenya, Chase Bank collapsed in April, barely six months after the failure of Imperial.
> Posted by Ellen Metzger, CFI
Before joining the Center for Financial Inclusion at Accion, I spent four years in rural East Africa managing an ultra-poor graduation program. At Village Enterprise, we focused on savings group creation and distributed conditional cash transfers rather than livestock (as is customary with graduation programs) in order to empower choice and facilitate ownership among our participants. Over years of traveling the bumpy back roads of Uganda and Western Kenya meeting with hundreds of savings group members, I met very few participants who went beyond their local savings groups to take loans from financial institutions such as MFIs. Those few who did created great success stories. In light of the recent article “Your Inflexible Friend” in The Economist, which offers a review of microlending’s history, I reflect on why we don’t see microlending in the rural areas of Uganda and Western Kenya and how that can change.
A good reputation is critical. In these areas, tragic stories of delinquencies and defaults travel faster and are remembered longer than stories of success. In Kenya especially, where there is more competition in rural areas among financial institutions than in Uganda, reputation precedes the products and services. These reputations can vary dramatically every 5 kilometers you travel. When groups are asked about being linked to a particular financial institution, one community will trust the organization, the next community a few kilometers away will cringe at the name. Microfinance institutions are extremely sensitive to fluctuations in trust, so it’s imperative for them to design trustworthy products and ensure adequate follow-through on their services every time.
> Posted by the Smart Campaign
The Center for Financial Inclusion at Accion announced today a $4.4 million, three-year partnership with The MasterCard Foundation to tackle the challenges facing consumer finance in an increasingly digital world. As a reader of this blog, you’re almost certainly familiar with the work of the Smart Campaign. The Smart Campaign is a global campaign committed to embedding client protection practices into the institutional culture and operations of the financial inclusion sector. Since 2009, we’ve worked globally to create an environment in which financial services are delivered safely and responsibly to low-income clients. The partnership marks a shift in strategy for the Smart Campaign, as well as a deepening of its footprint in Sub-Saharan Africa.
To date, the Smart Campaign’s flagship certification program has certified over 68 financial institutions, serving 35 million clients worldwide. Recent certifications include Opportunity International Colombia, ENLACE in El Salvador, and BRAC Bangladesh, part of the world’s largest anti-poverty organization.
Under the partnership, the Smart Certification program will continue. But with support from The MasterCard Foundation, the Smart Campaign will increase its focus on convening a broader range of players in the financial services field—including regulators, industry associations and financial technology firms—to take on client protection issues emerging from new technologies, to elevate the voice of the clients they serve and to effect change at the national level.
> Posted by Nadia van de Walle, Lead, Africa Partnerships and Programs, the Smart Campaign
Almost two years ago, the Smart Campaign surveyed financial service providers in Uganda as part of our study, What Happens to Microfinance Clients Who Default (WHTCWD). In summarizing what they described, we did not mince words, reporting the environment as “Hobbesian” at the time. Providers in Uganda described default as a major issue of concern for them. Borrowers in arrears would skip town or change their name, behaviors enabled by the lack of government IDs and credit bureaus.
MFIs often adjusted for these thin credit envelopes and their high distrust of clients by meting out harsh, inflexible punishments on an immediate basis to those who missed a repayment. For instance, providers, suspecting customers of being at flight risk often seized collateral immediately after missed payments in ways that contrasted sharply with the Client Protection Standards and best practices guidance. Some providers explained that they had to act quickly because borrowers have multiple loans and if they didn’t seize the collateral quickly, another lender would swoop in, leaving them with nothing. Unfortunately, all of this was occurring in an environment of weak due process and slow legal enforcement, and we heard about instances where lenders were paying off local law enforcement, turning to local councils to pressure defaulters, and even getting clients thrown in jail.
> Posted by Nadia van de Walle, Lead, Africa Partnerships and Programs, the Smart Campaign
The Central Bank of Nigeria (CBN) is preparing to issue a Guide to Charges for Banks and Other Financial Institutions for providers in Nigeria, which sets out rules for commissions, charges, and rates on various products and services. It has shared the draft Guide on its website for a period of public review and commentary.
As a campaign that seeks to keep the client at the center, the Smart Campaign is always happy to see provisions in such financial sector guidelines or regulations related to thoughtful transparency and disclosure requirements. We are, however, more cautious when it comes to mandated pricing limits, given the unexpected implications we have seen them bring for clients’ lives. We notice that the CBN file introduces monthly interest rate caps.
This is at odds with the suggested policies in the Model Legal Framework for Financial Consumer Protection, which is based on the Campaign’s seven client protection principles. The Framework’s section on pricing procedures advises supervisory authorities to not set price or interest rate ceilings or floors, but rather to seek long-term solutions related to improving disclosures and facilitating market competition.
> Posted by Elisabeth Rhyne, Managing Director, CFI
Sub-Saharan African countries may be leading the world in mobile money and growth in access to accounts, but the state of financial consumer protection in Africa is in urgent need of attention.
In the EIU Global Microscope’s 2014 overall rating of the policy environment for financial inclusion, African countries scored very close to the global average (44 SSA vs. 46 Global out of a possible 100). However, these countries were substantially below the average on consumer protection indicators – market conduct (27 SSA vs. 43 Global) and grievance redress (35 SSA vs. 45 Global).
These numbers have human consequences. The Smart Campaign commissioned research in two African countries – Benin and Uganda – which revealed the frequently harsh environment in which microfinance is conducted. In Uganda, research on what happens to clients who default showed that, lacking regulatory oversight and the calming influence of credit reference bureaus, lenders in Uganda feel compelled to resort to practices such as rapid confiscation of a borrower’s assets. They are afraid that if they do not act quickly, the borrower may flee. In the research on client experiences from Benin, clients reported major gaps in trust and transparency. For example, many reported being surprised by fees that were not explained or expected, having no place to turn when problems arose, or being publicly shamed for late payments.
The research pointed to very low trust on both sides between providers and customers. In fact, in Smart Campaign conversations with African microfinance institutions about consumer protection, one of the most frequently asked questions is, “Who will protect us (the lenders) from them (the borrowers)?”
Why Being Customer-Centric Is a Supply Side Strategy…
> Posted by Evelyn Stark, Assistant Vice President, Financial Inclusion Lead, MetLife Foundation, and Graham A. N. Wright, Group Managing Director, MicroSave
Financial Inclusion 2020 (FI2020) is a global multi-stakeholder movement to achieve full financial inclusion, using the year 2020 as a focal point for action. This blog series will spotlight financial inclusion efforts around the globe and share insights from key thought leaders in financial inclusion, with a specific focus on quality beyond access.
In recent years Human Centered Design (HCD) became a buzzword in the financial inclusion world. It focused financial service providers on the design of products and services based on customer insights. Design firms became part of the technical provider fraternity, servicing financial service providers in the quest to improve inclusion. At the same time, the network of financial service providers broadened to include mobile network operators and retail chains, in addition to microfinance institutions (MFIs), banks, cooperatives, and a myriad of microfinance suppliers. With new entrants come new ideas – and repetition of old ones. One consistent, but underrated idea, is to focus on the customer.
Customer-centricity is not a new concept in the microfinance and financial inclusion world. In 1998, MicroSave was set up (by UNCDF/DFID who were then joined by CGAP, the Ford Foundation, and the Austrian and Norwegian governments) to promote savings in the microcredit landscape of East and Southern Africa. Initial research in Uganda revealed that although microfinance institutions (MFIs) did not have a legal mandate to collect savings, they did have another problem: drop-outs as high as 60 percent per annum. Further investigation revealed that much of the problem lay in poorly designed credit products. Much of 1999 and 2000 was spent understanding the problem, re-designing products, and developing the “market research for microfinance” tools and training.
This past experience resonates with the current realization among proponents of financial inclusion that customers are not using products. This is evident in the GSMA research that found that 68 percent of registered mobile money customers do less than one transaction in 90 days. No frills accounts in India, and transactional accounts in many other settings, are mostly dormant (GAFIS, 2011, DNA, 2015). The market-led research approaches aimed at microfinance, and the human centered design approaches of the recent years, did not fully succeed in focusing provider efforts on the customer, nor did they help to increase the use of financial products and services. In the quest to understand this, we return to the unfolding story of the early years of market-led approaches, based on the MicroSave experience.
> Posted by Center Staff
Impact investing in East Africa has grown strongly over the past five years with over $9.3 billion disbursed, more than 1,000 deals, and roughly 150 investors managing about 200 active investment vehicles. These are among the findings outlined in a new report from the Global Impact Investing Network and Open Capital Advisors, which provides a state of the market analysis for impact investing in the East Africa region. The report examines the supply of global impact investment capital, the demand for investment resources, challenges and recommendations, and the country-level markets. What was found?
Here are a few of the report’s key messages:
- Kenya dominates impact investing in the region, accounting for more than half of its deployed impact capital and having more than three-times the in-country fund staff of any other country.
- Uganda ranks a distant second in capital received at 13 percent of that of the region, receiving support from its favorable business and regulatory environments.
- Despite its GDP being 50 percent bigger than Uganda’s, Tanzania claims about 12 percent of the region’s impact capital, owing its stature in part to its low population density, weak transportation infrastructure, and relatively unpredictable government interjections.