In 2011 only 20 percent of Uganda’s population was served by banks. By 2014, that figure rose to 44.4 percent.
According to the Global Microscope, a report produced by The Economist Intelligence Unit in partnership with Accion’s Center for Financial Inclusion, this was mainly due to mobile money platforms. Mobile technology is a major driver behind financial inclusion, allowing individuals to deposit money or pay loans using an e-wallet tied to their phone’s SIM card. With cheap mobile phones in the hands of 80 percent of adults across sub-Saharan African (for reference, 89 percent of adults in the United States own a mobile phone), financial service companies have the ability to go the last mile, often with local agents operating in lieu of bank branches.
However, despite these advances, a vast majority of rural populations are still unserved with 13.52 percent of the poorest 40 percent of the world’s population without access to a bank account.
An MFI launches mobile money
Accion’s partner, UGAFODE Microfinance Limited (UGAFODE), has been using the affordable mobile phone infrastructure in order to provide easy access and convenient, more efficient delivery of savings services. 80 percent of UGAFODE’s 16 branches are in rural areas with over 15,793 active borrowers and 45,944 active savers as of June 2016.
Between 2014 and 2016, 35 percent of women customers who participated in group savings programs also began to bank directly with UGAFODE. While many fintech players have been offering digital solutions to clients, UGAFODE’s experience shows how traditional microfinance institutions can use mobile platforms to great effect.
UGAFODE does this by using two products, GroupSave and AirSave, to combine traditional microfinance with fintech in order to bring their clients closer to full financial inclusion.
The UGAFODE GroupSave product is similar to traditional microfinance. It provides existing rural, informal savings groups with an opportunity to put their group’s surplus money (such as interest earned, social fund collections, and penalties) in a safe savings account. The account also includes access to credit directly through UGAFODE, allowing groups to not only save but build a viable credit history for future loans.
How mobile money works
In order to understand AirSave, you first need to know how mobile money works. With the power of a small, plastic phone, clients in need of cash can worry less about the insecurity of carrying money and the distance, cost and time to travel to bank branches. Though utilizing a mobile account does not always equate to financial access, digital payment systems can create an opportunity for financial institutions to embed a system (using reminders, automatic deposits, etc.) that encourages people to save.
UGAFODE is able to reach these underserved groups through AirSave, their mobile money product and GroupSave, their group savings product, leveraging the personal touch of the existing mobile money agent networks with the text-to-mobile wallet function.
Mobile money agents are small shops that are authorized by mobile money providers sell scratch cards with specific monetary value to clients. The client then texts the card’s codes to the number provided and will be credited the value of the card.
The low cost of mobile money
Before the implementation of their mobile channel, AirSave, UGAFODE’s clients would spend an average of 6% of their monthly income for transportation to and from a UGAFODE branch any time they wanted to make a deposit. This adds an extra financial burden to clients depositing small amounts and contributes to safety concerns about carrying cash, particularly for customers running a business. Now, clients spend just a few cents on the cost of the transaction, a convenience that has also triggered an incentive for women to become a more active part of financial management. Mobile phone channels reduce high participation barriers for women such as less mobility and time constraints by alleviating not only the cost of the transactions but also the emotional and physical stress of traveling to a branch.
Both AirSave and GroupSave are a result of human-centered research funded by a grant from the MasterCard Foundation aimed at finding Ugandan-specific solutions to mobilizing deposits. AirSave focuses on the individual client experience through mobile money agents, and GroupSave accommodates village saving groups by creating a platform linked to all members in a designated savings group. Many financial institutions in Uganda provide mobile money options, however, the flexibility and convenience for rural community-based organizations to save within groups securely has largely been lacking from the market.
Opportunities and challenges for the future
One of the main challenges that UGAFODE continues to face in reaching more clients is low customer literacy. Many of UGAFODE’s customers take time to learn mobile platforms because a majority of them are either illiterate or semi-illiterate and many are accustomed to sending and receiving cash rather than saving. UGAFODE’s staff has been directly engaged with helping clients to navigate the platform, equipped with experience gained from quarterly staff training. Furthermore, UGAFODE will now be working directly with mobile money agents to train them to be the first point of knowledge and support for the customer.
At the forefront of digital savings, UGAFODE’s model makes a great case for the imperative of integrating mobile technology so MFIs can reach clients faster and safer. Driving forward financial inclusion the last mile beyond the branch is not only innovative, but necessary, and UGAFODE is already doing it.