Brief - Bolstering The Financial Inclusion Landscape in Uganda

Bolstering the Financial Inclusion Landscape in Uganda: A case of aBi-
Learning Area 2:
Finance Partnership with the Fin Techs Umbrella Body (FITSPA)
Source Material:
1 Fin Scope 2018 Study report, FSDU, 2018, http://fsduganda.or.ug/finscope-2018-survey-
report/
2 Estimations by Micro Save based on the publicly available data from Venture Capital for Africa
3 FSDU study report, 2018: The Fintech in Uganda- Implications for regulation
4 Andrew Wandera, 2020: Regulation of Fin Techs in Uganda: Lessons for Bank of Uganda
5 FITSPA study report 2022: The state of Uganda’s Fintech Industry
Purpose of the brief:

This brief highlights the trends in evolution of the financial inclusion landscape, subsequent to
the proliferating Fin Tech industry, key constraints to scale (opportunities), lessons learned and
proposed interventions for adoption by FinTechs and aBi-Finance.
Background to the Intervention:

Over the past decade, the annual growth rate of the FinTechs in Uganda averaged 35%i. While
the formal financial inclusion in Uganda is reported at 58%, traditional financial service
providers clearly face challenges in extending financial services to the unbanked and under-
banked populationii. Therefore, the role played by Fin Techs in catalyzing and promoting
financial inclusion as the most important enabler through which access to and usage of
financial services is achieved, thereby generating significant benefits for the poor, the
marginalized, and MSMEs cannot be undervaluediii. With the ever-emerging technological
disruptions in the financial services sector, financial regulation faces unprecedented
uncertaintiesiv. These technological disruptions present an opportunity to Financial Services
Providers like aBi-Finance to synergistic collaborate with the Financial Technology Service
Provider’s Association (FITSPA) in promoting financial inclusion, hence making it easier to
iterate and deploy new financial interventions broadly.
Financial Technology Service Providers Association (FITSPA) with technical support from aBi-
Finance, commissioned a study to provide a detailed, industry-backed analysis of the Uganda
Fintech industry. This study aimed to evaluate the state of the Fintech industry in Uganda to
allow stakeholders like aBi-Finance to strategically think through and direct interventions that
are within manageable interests of the industryv. Below are the key findings, lessons learned
and proposed recommendations to bolster the financial inclusion landscape leveraging on the
Fintech ecosystem.
Key Findings:
i. The skills considered the most essential are often the ones Fintechs have the most
trouble accessing, and these include software and App development, infrastructure,
cybersecurity, data scientists, machine learning, cognitive computing, design,
marketing, and regulatory and risk management.
ii. Capital/funding is and remains to be a key enabler and constraint to Fintech growth
and development globally. Contrary to popular belief, most of the Fin Techs are
self-funded (57%), with minimal investment from other funding sources such as
venture capital, private equity, grants and others.
iii. A multitude of traditional systems pose an obstacle to interoperability between
existing legacy systems and new Fintech systems. Fin Techs have had limited
success in linking their products and services to other traditional incumbents. The
ongoing discussions at Bank of Uganda and UBA to put in place a National Switch
which will accelerate interoperability.
iv. Fin Techs have struggled to create new infrastructure and establish new financial
services ecosystems such as alternative payment rails or alternative capital markets.
Greater success has been seen in their improvements of the existing traditional
ecosystems and infrastructure.
Lessons Learned:
a) Digital disruption has the potential to shrink the role and relevance of today’s FIs (aBi-
Finance clients). It can also simultaneously help the FIs to create better, faster, and
cheaper services that can render them well-equipped to better serve their customers.
In order to best embrace these opportunities, traditional FIs and impact investors like
aBi-Finance have acknowledged the need to overcome institutional complacency and
recognized opportunities for synergistic collaboration with Fin Techs to deliver
customer centric solutions.
b) The low- and middle-income markets in Uganda present significant opportunities for
Fin Techs, impact investors like aBi-Finance, development partners and incumbent FIs
to tap into a huge unmet market in credit in enterprise finance, digital insurance,
savings, and innovative E- tailored financial services.
c) FinTech companies are increasingly targeting the access to finance gap, while
simultaneously entering some of the most profitable areas of the financial services
value chain. Their unique offering, coupled with robust, scalable technologies, has the
potential to drive significant gains in financial inclusion, hence rationalizing the
planned synergistic collaboration with aBi-Finance.
d) To realize the full potential of Fintech, there is need for the government, regulators,
traditional incumbents, Fintech companies, FSPs and investors to rally together,
collaborate and build upon the existing infrastructure to create a conducive
environment for Fintech innovation and development.
e) Traditional marketplace lenders have re-oriented their approach towards digitalization
and ease of convenience for their customers. This in conjunction with the growing
number of lending oriented Fintechs is and will continue to provide a frictionless
application and swift response for customers.
Recommendations:
i. Fintechs seeking funding from investors need to understand the funding context. This
means that Fintechs need to understand what type of funding they are seeking it, be it
equity funding, concessional loan funding, grant funding amongst others. In
understanding what funding type best suits their business, Fintechs can properly
position themselves to relevant funders through the Umbrella body FITSPA, innovation
hubs, direct business sponsor approach.
ii. In order to cope with the Financial Services disruption wave, aBi-Finance should
customize a blend of financing instruments to address pertinent business needs of the
infantry Fin Tech Sector. This can be in the form of Working Capital support to cover
operational expenses such as cover for research and development, marketing support,
wages and rent and or Capital Expenditure support to enable growth and expansion in
terms of fixed assets like infrastructure, hardware equipment, software, construction
among others.
iii. The sector being nascent, without proper credit administration structures and with a
constrained regulatory requirement, aBi-Finance could leverage on the existing Fund
Managers in the private equity and investment market, to tailor a product with a clear
value proposition and shove any such existing inherent risks with the Fin Tech sector.
1
Fin Scope 2018 Study report, FSDU, 2018, http://fsduganda.or.ug/finscope-2018-survey-report/
2
Estimations by Micro Save based on the publicly available data from Venture Capital for Africa
3
FSDU study report, 2018: The Fintech in Uganda- Implications for regulation
4
Andrew Wandera, 2020: Regulation of Fin Techs in Uganda: Lessons for Bank of Uganda
5
FITSPA study report 2022: The state of Uganda’s Fintech Industry

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Bolstering the Financial Inclusion Landscape in Uganda: A case of aBi-

Purpose of the brief:

Background to the Intervention:

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