Context
More than 85% of the general population and 95% of the poor population in Uganda live in rural areas. The agricultural sector, however, contributes only 22% to domestic production. The food production barely satisfies the demand of the rapidly growing population.
Crucial for the realisation of potential in rural areas and the agricultural sector are a selection of demand-oriented financial services. However, only about 16% of people in rural areas have access to formal financial products ("rural finance"). Due to low financial literacy on the demand side, the population in rural areas is not able to lobby for suitable financial services or take proper advantage of those available.
Objective
Uganda’s rural population, in particular actors in agricultural value chains, benefit from increased access to improved financial services.
Approach
The programme applies a multi-actor approach which includes representatives of relevant ministries, supervisory bodies, associations and individual financial institutions. The programme’s political partner is the Ministry of Finance, Planning and Economic Development (MoFPED). The lead implementing partner is the central bank, Bank of Uganda (BoU). Through the implementation of activities in three output areas, the following is to be achieved: (i) the legal framework for financial intermediaries in rural areas is improved, (ii) the capacities of the financial institutions in rural and agricultural finance and for related product development are improved, and (iii) the financial literacy of the rural population is improved. Parts of output area (ii) have been assigned to a consulting company.
Framework Conditions and Supervision of Rural Finance. The programme supports the central bank and the Ministry of Finance in the establishment of relevant legislation and regulations (e. g. adjustment of the microfinance regulations). As part of the Central Bank’s Financial Inclusion project, which was created with the support of the predecessor project, a comprehensive regulatory framework for innovative distribution mechanisms for financial services (Branchless Banking) is being developed. This covers Mobile Money (mobile-based payment services) as well as Agent Banking (branch-independent banking transactions through third parties).
Capacity and Product Development for Rural and Agricultural Finance. To improve the available range of demand-oriented financial services, the project targets financial intermediaries.
Partner institutions in this group are advised in the development of financial products that address the needs of customers (e. g. production loans for small farmers), as well as in the establishment of sustainable structures for rural and agricultural finance. An important approach is value chain finance, i.e. the development of financial products adapted to certain agricultural products. This activity is largely being carried out by the consulting company NIRAS
In future, agricultural producers and retailers will be able to make use of a smartphone application which charts production and payments systematically, increasing the efficiency and transparency in the value chain and improving the financial standing of farmers.
In addition financial institutions are supported in reaching out to rural areas. This is achieved, for instance, in an approach called ‘linkage banking’, which connects informal savings and credit groups to banks.
Financial Literacy for the Rural Population. The programme supports the central bank as the steering agent of the national strategy for financial literacy which was published in line with a multitude of major stakeholders. Key messages regarding financial literacy are disseminated through schools, the media, associations and informal local groups.
Results
The guidelines issued by the central bank on mobile phone-based and payments have, among other benefits, increased the transparency of prices in this area.
The bank for microfinance, PRIDE, has developed a production credit facility for smallholder farmers working in the value chain for sunflower seeds. This credit enables the farmers to increase their yields. In a development partnership with the private sector, by bringing together a number of informal savings and credit groups in Karamoja, one of the poorest regions of Uganda, GIZ and the commercially operating Centenary Bank have mobilised more than EUR 1 million from more than 14,000 women and men organised into groups.
More than 150,000 rural people have already benefited from pilot measures in the field of financial literacy. Basic financial education has been included in the new curricula for secondary schools, which will be used from 2017 for teaching more than 1.2 million pupils.
Over 4.5 million people have so far benefited from the consumer protection guidelines developed jointly with the central bank.